Analysis and Forecast of Corrugated Paper and Linerboard
Introduction: Since February, there has been a serious glut of corrugated paper and linerboard on the market. No signs have appeared in the market to curb continuously dipping paper prices. The market is likely to continue the downtrend, as March marks the offseason for corrugated paper and linerboard.
There has been a serious glut of corrugated paper and linerboard on the market, leading to continuously declining paper prices, and no stop signal has appeared. According to SCI, as of February 28, China-made grade-AA 120g corrugated paper featured average daily price of RMB 3,159/mt, down RMB 107/mt or 3.03% from the beginning of February. As regards linerboard, the price was RMB 4,261/mt, down RMB 135/mt or 3.07% from the beginning of February. It is predicted that the market may trend under pressure, due to the offseason in March.
As illustrated in the chart above, since February, the corrugated paper and linerboard market has remained in the doldrums. Meanwhile, the prices dropped to a two-year low. Major contributing factors were as follows.
A prominent glut: In February, as market sales recovered, supply and demand began to increase gradually. However, the growth of supply exceeded that of demand, widening the supply-demand gap, as paper mills recovered production steadily. According to SCI, the operating rate of corrugated paper rebounded to 54.27% in February, up 15.82% M-O-M. In terms of linerboard, the rate rebounded to 58.48%, up 15.28% M-O-M. New capacity of 420kt/a was put into production in Haiyan County, contributing to the obvious increase in spot market supply. As a result, the supply-demand gap jumped by 30kt from January. Against this backdrop, paper prices softened marginally.
Lower cost is another bearish factor for paper prices. As prices of OCC were affected by tepid paper sales, and shipments of imported paper arrived in port, packing stations engaged in selling more actively. All these increased the volume of goods delivered to paper mills, thus the supply in the market. In February, the average monthly price of OCC declined by 4.22% M-O-M. As downstream paper prices failed to increase, under cost pressure, players became inactive in pulp procurement considering the cost pressure.. In this sense, there was a downtrend in pulp prices, of which UKP prices slid by RMB 50-300/mt, and CMP by RMB 50/mt. From a comprehensive perspective, cost of corrugated paper dipped by 3.24% M-O-M, and that of linerboard by 2.60%. Decreased cost made for lower paper prices.
From the perspective of market performance, currently, the market is on the decline, affected by multiple bearish factors, including increased supply, inventory and arrivals of imported paper shipment as well as decreased cost. As the offseason for corrugated paper and linerboard draws near, the market may continue to trend downward.
Prices of Corrugated Paper and Linerboard May Continue to Go down in March
Analysis on the Contributing Factors for Prices of Corrugated Paper and Linerboard
As the offseason approaches, the market may continue to drop. However, the decrease may take place slower. Though units at large-scale paper mills in Dongguan and Chongqing planned turnarounds for 3-20 days, supply pressure on spot market may persist due to more calendar days and arrivals of imported paper shipment in March. As policy stimulus takes effect, demand is rebounding gradually. Nevertheless, consumption recovery falls short of expectations, offering limited support to the market. Meanwhile, prices of major waste paper are predicted to hit the bottom, lending weak cost support to paper prices.
On the whole, due to multiple bearish factors, the corrugated and linerboard market is predicted to trend downward. However, as paper prices continue to drop, more units may be shut down for maintenance, slowing down the price decreases.
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