Pulp Price May Drop and Stabilize Despite Traditional Peak Season
Overview: In August, the imported HWP price went down, and the import offer was also on a downward slope. As a result, participants' expectations went bearish, and their order volume may decrease. From September to October, the HWP import volume may edge up and then drop. In the meantime, bolstered by the traditional demand peak season in September and October, rising downstream operating rates may lead to higher consumption and demand, which will stabilize the current HWP market price. However, due to waning cost support and additional supply from newly added capacity in China, the HWP spot price may first drop and then stabilize in September and October.
Spot prices went down with mostly essential buying in August
According to SCI, as of August 30, the monthly average price of imported HWP was RMB 4,912/mt, down 4.32% MoM but up 6.33% YoY. The falling HWP import and spot prices had a bearish influence on participants’ sentiment. In addition to the low gross profit rate of the downstream paper industry, paper mills mainly attempted to destock and showed limited purchasing interest. Besides, after the new capacity in Fujian was launched, market anecdotes suggest that the seller was competing for market share with low prices. Aside from that, the integrated ivory board, HWP and CMP lines at Nine Dragons Beihai are also expected to be launched in September. Besides, a 40kt/a HWP line at Guangxi Xianhe New Materials is heard to have been launched. The supply pressure increased, and the HWP price may come down again.
Sep-Oct Pulp Market Driver Analysis
The HWP import volume is expected to decrease
As seen from pulp shipments from major suppliers to China, the import volume is expected to decrease. Considering the 2-month shipping time, the HWP import volume in September will be determined by the shipments from major exports to China in July. The HWP export volume from Brazil to China dropped by 1.87% MoM, and that from Chile to China rose by 13.85% MoM in July. Therefore, the HWP import volume may edge up in September, and in addition to the release of newly added capacity, the pulp price may come down under pressure. However, as the import offer went constantly bearish, buyers in China may cut purchase volume, and the imports in October are likely to decrease, which will buffer the HWP price drop.
Limited demand increase in September and October may restrict pulp prices
From September to October, the paper industry gradually entered a peak season, With the start of the new round of publishing orders as well as restocking for tissue ahead of the Double 11 e-commerce shopping fest, the paper industry operating rate is likely to climb from September to October. However, due to insufficient demand recovery in the ivory board market, some medium and small-sized players may experience downtimes, so the operating rate may decrease. From a profit perspective, the gross profit rate of some downstream paper varieties hovered at the cost lines, and the demand for pulp purchases may still be restricted. In conclusion, although the demand factor may lend potential support to the pulp market, the overall performance may be lackluster.
Cost and sentiment factors may have bearish influence on spot prices
According to SCI, the import price of Brazilian HWP entered a downward slope since June, and the announced HWP offer for August shipments was lowered further by $40/mt, which lent limited support for resale prices in the future. In the meantime, the decline in import prices also cast a bearish influence on participants’ sentiment, and buyers became cautious in purchasing.
SCI reckons that from September to October, the market supply and demand conditions may gradually improve, but as newly added pulp capacity in China and overseas countries is released, participants’ sentiment has turned clearly bearish. Although the peak season demand may be released in H2 of September, the overall market demand recovery may be insufficient overall. It is estimated that the imported HWP price may hardly increase, and the spot price is likely to drop first and then stabilize from September to October.
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