CICC: The core strategy of Chinese paper companies has switched to using their own fibers to hedge against fluctuations in pulp prices with strong financial attributes

The Zhitong Finance App learned that CICC released a research report saying that the paper industry chain currently shows the characteristics of a “high concentration on the resource side and scattered game on the processing side”. Pulp is a scarce endowment resource and has strong pricing power. At present, Chinese paper companies have entered a mature inventory game. Growth driven by capital expenditure alone is unsustainable, and the core of the strategy has turned to using their own fibers to hedge against fluctuations in pulp prices with strong financial attributes. Continue to be optimistic about the leading performance of “Forest Pulp and Paper Integration” in 2026. Under resource constraints and cost fluctuations, integration is the core of achieving cost hedging and resource revaluation. It is recommended to focus on “value integrators” with high fiber self-sufficiency rates and resource barriers.

CICC's main views are as follows:

After the paper bull market in 2021, profit distribution was skewed towards the pulp side, and the clearance of paper production capacity showed a “long-tail effect”

CICC believes that the paper industry chain currently shows the characteristics of a “high concentration on the resource side and a scattered game on the processing side”. Pulp is a scarce endowment resource and has strong pricing power, while midstream paper is squeezed by high pulp prices and weak demand, and profit margins continue to narrow. Due to the high investment per ton and high depreciation pressure, the industry is slow to clear out during the oversupply cycle, making it difficult to transform scale effects into price dividends, and profit stability is largely dependent on effective transmission on the cost side.

The strategic paradigm shifts from capacity expansion to industrial chain integration

CICC believes that Chinese paper companies have reached a mature stage in the stock game, that growth driven by capital expenditure alone is unsustainable, and that the core of their strategy has turned to using their own fibers to hedge against fluctuations in pulp prices with strong financial attributes. This integrated layout essentially deposits unstable processing profits into determined resource premiums, enabling leading companies to gradually transform from “global resource handlers” to “value integrators”, and become the key to maintaining ROE stability at the bottom of the cycle. Sun Paper, on the other hand, is the first to break through and establish “forest pulp and paper integration” under domestic resource constraints.

In 2026, there will be a short-term gap between wood chip supply and demand, and we are optimistic about the restoration of the wood chip and pulp price center

In the short term, domestic production of homemade pulp has been launched on a large scale in recent years, but the supporting construction cycle for high-quality wood chip resources is far behind the commissioning of equipment. It is expected that in 2026, the domestic wood chip market will experience a phased supply gap, and the shortage of raw materials will drive up the cost focus; with marginal improvements on the demand side, the pulp price center is expected to be repaired in 2026, and leading enterprises with self-sufficiency capabilities throughout the industry chain will continue to interpret premium opportunities from “processing and manufacturing” to “resource revaluation”.

Aspect of the target

Optimistic about Sun Paper (002078.SZ), Nine Dragons Paper (02689), and Suzano (SUZ.US).

risk factors

Demand fell short of expectations; additional production capacity exceeded expectations; pulp prices fluctuated beyond expectations.