Wood Chip Market Turns Bullish on Better Demand
Introduction: In August, the wood chip market availability was affected by high temperatures and rainy weather, and the supply volume remained relatively limited. In mid-August, a specific integrated player released signals for production resumption, and its wood chip purchase price was also raised, driving the overall market upward. In September and October, the wood chip market demand is expected to increase following restarts and production ramp-up, bolstering wood chip prices.
Pulp mills maintain steady production, supporting wood chip market
In July and August, high temperatures and rainy weather alternated frequently, and precipitation in some northern regions increased in August compared to July, which affected logging and chipping activities, thereby affecting market supply. Some pulp mills had to consume inventory during this period to ensure production stability. Given relatively low inventory levels at some pulp mills, they raised purchase price to attract wood chip deliveries, pushing the market price upward. As of August 29, the market average price for poplar wood chips was RMB 1,282.71/mt, up 1.48% MoM.
The downstream application of poplar chips is primarily for CMP production. Therefore, the operating rate of domestic CMP can indicate the demand for poplar chips. Domestic poplar CMP capacity is relatively concentrated in Shandong and Henan regions. In August, Chenming has finalized the plan for an overall restart, prioritizing the resumption of production at its Shouguang mill. On August 25, it successfully resumed paper production at Line 6, with subsequent plans to restart its chemical pulp and other paper production lines. To ensure the timely restart of the chemical pulp production line and promote the increase in wood chip arrivals, Shouguang Chenming actively raised wood chip purchase prices in mid-to-late August, further boosting market confidence.
Stronger demand support expected in September-October
With production resumption of idled pulp lines in Shandong and the production ramp-up of newly added capacity in Hubei, the wood chip market may receive demand support.
In September and October, with the arrival of the autumn harvesting season, the logging of trees may decelerate in some regions. Most farmers will prioritize grain harvesting as crops such as corn reach maturity, while putting aside the tree logging work. Thus, the supply reduction of wood chips may persist, lending support to chip prices.
Downstream pulp prices may rise first and then drop, but the decline is expected to be limited. Taking imported HWP as an example, overseas pulp mills are actively promoting price increases. Some Brazilian pulp mills announced two rounds of price hikes, cumulatively increasing prices by $40/mt. Considering factors such as delivery cycles, some industry participants may face higher wood pulp arrival costs in September compared to earlier periods. Therefore, HWP prices may remain firm in September. However, downstream profitability is mostly under pressure, and further price increases may face resistance. In October, prices for some pulp grades may experience narrow declines. Overall, the support from higher pulp price to the wood chip market may be strong at first and then start to weaken.
Overall, the wood chip market demand is expected to increase from September to October, in addition to tight supply during the agriculture harvesting season, the upward momentum may be strong. It is estimated that the poplar chip price may hover at around RMB 1,290-1,370/mt during September and October.
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