Ivroy Board Gross Profit Decline Affects Pulp Market
The theoretical gross profit rate of paper mills hovered at lows, which restricted sales in the pulp market. From late May to June, the profitability recovery in the paper industry will become a major market driver on the demand side. It is estimated that the pulp price may remain rang-bound from late May to June.
Poor paper profitability restricts pulp price hikes
In 2024, the ivory board market price was generally on a downward trend. In April and May, the ivory board price took a deeper dive and notched record lows. As of May 20, the ivory board price went down by RMB 170.91/mt. In contrast, aside from the CMP price, those of SWP and HWP remained bullish. As of May 20, the average spot market price of imported SWP and HWP rose by RMB 99.85/mt and 179.60/mt respectively M-O-M. The falling price and rising costs squeezed the profit of ivory board production, and the theoretical gross profit rate of ivory board was as low as -15.78% as of May 20, down 5.35pp M-O-M. As a result of the constantly falling gross profit rate, ivory board mills show less appetite for pulp procurement.
Price hike of imported wood pulp encountered resistance
Since January, due to constant supply-side uncertainties, the bullish futures market and import prices, the spot resale prices of imported SWP and HWP rose constantly, but the CMP price declined due to comparatively weaker demand, low prices of Chinese-made equivalent and low import prices. Compared with historical data, the SWP and HWP prices hovered above the historical average, while the CMP price has fallen below the historical average and reached record lows in April and May.
Due to the strong correlation between and insufficient demand recovery, especially the low profitability of the paper industry, these are the factors that affected the pulp market. From January to May, the gross profit rates were at the 5-month lowest point during the past 5 months, and most industries suffered theoretical losses in general. As of May 20, the ivory board gross profit rate dropped to -15.87%, which had a more apparent influence on the pulp market.
Weak profitability and expectations in the ivory board market may drag pulp price
From May to June, the ivory board price is expected to remain range-bound near the market bottom affected by the traditional demand slack season, and the end demand recovers slowly. Participants generally lack confidence in the future market and are cautious in building stocks. Therefore, the pulp price hike can hardly be passed down to downstream paper and end-use product prices. On the supply side, the pressure is likely to persist, and due to perfect competition, the ivory board price may still face downward pressure and therefore restrict pulp price hikes.
As for the wood pulp market, in the short term, the influence of the supply and cost factors are more apparent, and the pulp price may hardly drop. From late May to June, the demand growth from downstream capacity expansion is still expected, but mixed supply-side factors such as unexpected supply disruptions and anticipated capacity expansion bring uncertainties, and participants' sentiments vary.
In conclusion, the falling paper prices and profitability may affect sales in the pulp market, but the pulp supply and cost factors have not improved, and the pulp price is likely to go sideways amidst market stalemate.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
Please click "Read more" for the full article.
