Coated Paper Market Faces Obstacles for Seasonal Rebound
The coated paper market price dropped further in Q3, but the demand factor did not release a bullish signal. With sparse new orders, participants' confidence was still restricted. In Q4, with the release of publishing orders, some downstream players may start to purchase essential volumes. Despite that the profit of the middle sections remained low, and players generally lacked interest in building up stock, the overall demand recovery was limited. Thus, the paper price may hardly rise following the seasonal pattern.
Coated paper price went more apparently downward in Q3
In Q3, the coated paper market price fell constantly, and the average price went down QoQ. According to SCI, as of September 29, the 157g coated paper market average price was RMB 5,546/mt, down RMB 194/mt or 3.38% QoQ. The highest price appeared in early July at RMB 5,675/mt, while the lowest price appeared in late September at RMB 5,500/mt, the spread between the highest and lowest prices was 3.18%.
In specific, the price drop in July and August was steeper due to the lack of new orders during this phase. The previous round of orders has been delivered, while the latest round has yet to be placed. Thus, due to ineffective support, the coated paper market price went down under pressure. In September, due to constant profit pressure, distributors were less willing to sell at low prices, and most of them held offers stable and stayed on the sidelines. Only a few players saw price adjustments.
In Q3, the coated paper market profit recovered in China. According to SCI, as of late September, the average gross profit rate of the coated paper industry was 2.90%, up 3.70pp QoQ. Factors affecting profit recovery within the quarter were: First, although the paper price went soft, the price drop was relatively limited. The QoQ price went down by 3.38%. Second, the wood pulp price also went down slightly in the upstream. Therein, the HWP price saw more apparent drops. As of late September, the total material cost slipped by 9.75% QoQ, and in conclusion, the decrease in cost was more apparent compared to that in price.
Tightened supply supported coated paper market in Q3
In Q3, the coated paper industry operating rate fluctuated narrowly, and the market supply showed signs of narrowing. The coated paper industry operating rate was 58.27% on average, down 3.92pp QoQ. Due to brief maintenance and production swings in Q3, there was a contraction in coated paper supply, which lent slight support to coated paper prices.
From an inventory perspective, the coated paper enterprise inventory increased somewhat in Q3. Due to the delivery of publishing orders in July, some production lines shut down for maintenance, so the inventory pressure was unapparent. Across multiple products, distributors were less enthusiastic about stocking up due to inventory pressure.
Coated paper price may see limited fluctuations in Q4
Supply & demand: Q4 can be split into several phases. In October, with the intensified release of publishing orders, the demand may create bullish support for the coated paper market. In November, with the order delivery started, the new order status may soften slightly. As the Spring Festival holiday approaches in December, downstream players may show less purchasing interest, and distributors may become eager to get cash back. On the supply side, there will be no new capacity added in Q4, but some players have maintenance schedules. Therefore, the coated paper operating rate may hover around 55-61% in Q4 with limited fluctuations.
In terms of cost, in Q4, some pulp mills may start maintenance, which will support the market performance. However, with the ramp-up of new capacity in Brazil, as well as in Fujian and Guangxi of China, the market supply will likely increase, and the launch of integrated capacity may also pare the demand for market pulp. It is estimated that the pulp price may start to drop after staying flat, and affected by supply disruptions and financial attributes of the price the price drop may be limited. However, the cost drive was overall bearish.
In conclusion, the supply disruption in Q4 was relatively unlikely in Q4, and the market demand may first turn strong and then go soft, which lent limited support to the market performance. The demand factor is expected to go strong. During Q4, the coated paper may rise following the conventional seasonality in October, but the price is more likely to drop in November and December near the end of the year.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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