UKP Price Showing Bullish Signs on Better Demand
Intro: The unbleached kraft pulp (UKP) market has turned bullish recently, backed by better downstream market performance and tightened control on recycled pulp. Some packaging paper mills actively stocked up on UKP, pushing the spot market price slightly upward. In November, despite an anticipated increase in import volume, the UKP price may still increase marginally, backed by the traditional peak season demand.
Ivory board production profit improved with rising prices
Since September, due to persistently high raw material costs, ivory board producers have faced pressure and shown a strong willingness to raise prices. Also, better packaging orders during the September and October traditional peak season created a bullish market atmosphere for price hikes. Ivory board mills utilized this trend to push prices up, reversing the previous declining trend. As of late October, the price range for mainstream brands of 250-400g ivory board in China was RMB 3,800-3,900/mt, with mid-to-high-end brands at RMB 4,000-4,500/mt. The monthly tax-inclusive average price was RMB 4,049/mt, up approximately RMB 80/mt or 2.02% compared to the previous month, and up RMB 119/mt or 3.03% compared to that at the end of August.
With ivory board prices rising continuously during the month, operating pressure on ivory board mills has significantly eased, and gross profit levels have recovered. As of late October, the monthly processing gross profit rate for ivory board was -8.36%, an improvement of 2.50pp from the previous month. The improved ivory board production profit has boosted producers’ enthusiasm for raw material procurement.
Imported UKP prices edge up on the back of better demand
Improved paper profitability has encouraged producers to source raw materials, significantly increasing inquiries for imported UKP. Furthermore, the Announcement on Declaration Requirements for Imported Recycled Pulp issued by China’s customs on October 9 stated that starting October 10, imported recycled pulp must be specified for either dry or wet production process on the customs declaration form. This policy has caused concerns among top packaging paper producers over material supply. To ensure the safety of production, paper mills have stocked up on imported UKP, which is an alternative material for recycled pulp.
The recent improvement in inquiry sentiment from ivory board mills and their initiative to replenish raw material inventory have further promoted the recovery in UKP market demand, driving up the spot price of imported UKP. As of late October, the average price of imported UKP in China's mainstream market was RMB4,975/mt, up RMB50/mt or 1.02% from the start of the month.
Positive UKP Market Outlook for November
Looking ahead, during the traditional consumption peak season, there is room for order release for paper boxes, paper bags, etc. Demand for food and pharmaceutical packaging is also in its traditional peak season. Domestic consumption of ivory board in Q4 is expected to maintain a recovery trend. Furthermore, with the current poor profitability for ivory board production, producers may continue pushing for higher paper prices. However, due to uncertainties in the international trade environment and supply pressure from domestic new capacity additions, the price increase for ivory board is expected to be relatively limited. In November, with expected increased activity in packaging paper production and the anticipated commissioning of new capacity, the demand for imported UKP is expected to rise, lending support to more bullish UKP prices.
China's dependence on imported UKP is relatively high, with major import source countries including Chile and Canada. According to pulp export data to China released by Chilean and Canadian customs, Chile's UKP exports to China in September were 9.9 kt, a slight increase of 0.75% MoM, but the total volume remained the second lowest monthly level this year. Considering the two-month shipping time, this suggests limited room for growth in the imported UKP supply in November.
In summary, seasonally better packaging paper demand in November may notably impact UKP price trends. Supported by the traditional peak season, imported UKP prices are still expected to increase. However, the extent of the price rise may be constrained by both the specific market supply-demand dynamics and policy adjustments. The potential upside is estimated to be within 100 RMB/mt.
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