Coated Paper to See Better Profits in March
Overview: The theoretical profit level of the coated paper industry rebounded from the bottom in February. During the month, coated paper prices stabilized and then increased, the upstream pulp prices were initially strong then turned weak. Under these combined effects, the theoretical profit level of coated paper recovered from a low position, but the increase was relatively limited. In March, pulp and paper prices are both expected to be bullish, and the coated paper profit recovery may continue but with restricted potential.
Coated paper profits from the bottom in February
Since the beginning of February, the theoretical profit level of the coated paper industry has trended upward, but due to the low initial profit level, the monthly average gross profit rate only saw a minor uptick. According to SCI, as of February 27, the domestic coated paper industry’s theoretical gross profit rate was 7.79%, up 5.16pp MoM. The monthly average gross profit rate was 3.80%, up 0.31pp MoM.
The production costs first rose and then fell, but the monthly average level climbed. Although pulp prices adjusted downward after rising, the monthly pulp price still increased driven by hikes in import offers and anticipated supply tightness due to overseas maintenance plans. However, after the Spring Festival holiday, market pulp shipments arrived at ports, while downstream paper mills maintained a slow pace of procurement. As the supply-demand imbalance intensified, and pulp prices showed a weakening trend in H2 of the month. According to SCI, as of February 27, the average spot market prices of imported SWP, HWP and CMP were RMB 6,500/mt, RMB 4,811/mt, and RMB 3,692/mt respectively, down 0.39%, up 0.74% and up 0.36% MoM. The monthly average prices of the above three pulp types increased by 1.57%, 3.20%, and decreased by 0.61% MoM. Under the combined effect, as of February 27, the raw material cost of coated paper declined by 0.48% compared to the end of January, but the monthly average level rose by 2.19%. Thus, affected by cost fluctuations, the coated paper profit level first dropped and then increased.
Revenue of coated paper sales increased after going sideways, with a relatively limited average monthly increase. In February, the coated paper price remained stable at first and then increased. Most paper mills posted price increase notices in mid-February to push for price hikes. Besides, a major integrated player has not restarted production, which led to a tightness in the market supply of certain grades.
Some downstream traders had relatively low coated paper stock, and they were also risk-conscious. Therefore, traders also raised prices in H2 of the month to avoid losses, driving overall market prices up. As of February 27, the domestic market average price for 157g coated paper was RMB 5,820/mt, up 5.24% MoM, and the monthly average increased by 1.88% compared to that in January.
In summary, since the beginning of February, the pulp and paper prices have shown periodic differences, but when looking at the monthly average level, the coated paper price failed to keep up with cost increases, hence the monthly average gross profit rate decreased slightly compared to January.
Coated paper profit may continue to improve in March
The pulp price may remain firm, lending cost support. Based on the announced import offers for March HWP shipments, which have been raised by $20/mt, the cost is still expected to remain firm. Besides, due to overseas maintenance in Q1, the shipment volume from certain suppliers has started to decrease since February. Besides, considering the shipping time, the imported market pulp supply may see declines in March. In the meantime, paper prices are expected to rise during the traditional peak season, which will support the pulp price. Thus, it is expected that the pulp market may remain firm in March, and the cost support to the coated paper market will likely be solid.
Coated paper prices may continue to adjust upwards. Paper mills to continue price hike attempts, and a major integrated player has not yet released clear signals for an overall restart. Thus, a lower regional supply will provide support to the coated paper market. Besides, peak season demand from publishing orders will be released in March, and the demand support will also be decent. In addition, some traders have limited stock, and considering rising purchase costs, they may raise prices to evade the risks of making losses. Thus, under multiple factors, it is estimated that the coated paper price will continue the uptrend in March, with improvements in gross profit levels.
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