Influences of the Extended Holiday on the Pulp Market
Intro
The 2020 Spring Festival Holiday Extension Notice from the General Office of the State Council of the People's Republic of China states that the holiday is extended to February 2, but enterprises in most provinces and municipal cities including Hunan, Guangdong, Shanghai, Chongqing, Jiangsu, Zhejiang, Henan, Hebei, Shandong, Anhui, Guizhou, Yunnan, Fujian, Liaoning and Inner Mongolia are notified by the provincial governments to resume operation no earlier than 24:00 of February 9, and those in Hubei province where the epidemic situation most intense will resume operation no earlier than 24:00 of February 13. Affected by uncertainties such as the slow recovery of the logistic system, the availability of feedstock and necessary chemicals is tight, and the production at some pulp and paper mills is also delayed.
Tepid transactions after the holiday and no futures transactions were made.
After the Spring Festival holiday, the transportation is restricted in various regions. In addition, the production at downstream paper mills are delayed, and transactions in the pulp market will require more time to recover. The pulp futures trading opened on February 3, and the SP2005 contract closed at RMB 4,390/mt. However, as no buyers or sellers entered the market, no futures transaction was made.
Logistic service has not recovered, the production at pulp mills that have not restarted might be delayed.
In terms of domestic wood pulp producers, most produce HWP and CMP. The industry concentration ratios (CR4) were at 82% and 74% respectively. It is heard that only a few pulp mills have not restarted yet, and most are located in Hubei. Restart postponements are seen in provinces including Shandong, Jiangsu, Hubei, Yunnan, Guangdong and Guangxi, therein, the postponement was carried out strictly in Hubei, Jiangsu and Zhejiang. The main reason which has led to the postponement is the low availability of chemicals and feedstock. Some participants reflect that the restart time of this year may be later than the previous years.
Port inventory rose marginally, and inventory accumulation started to show.
According to SCI, the pulp inventory (Qingdao, Changshu and Baoding) in late January was 1,679kt, up 6.33% M-O-M. After the holiday, the pulp inventory at the inner port of Qingdao is 660kt, up 70kt from before the holiday. The inventory status at other port was not clear yet, but it is expected to rise marginally.
Restart schedules vary at downstream producers, the offering remains stable.
In the long term, the pulp supply will be affected by the bush fire in Australia, the strike in Finland and the draught in Indonesia and Chile. In regard to pulp supply from domestic producers, it is also affected by scarcity in chemicals and feedstock due to the slow recovery of the logistic system in China. On the demand side, the domestic demand recovery is restricted by the delayed restart schedule at downstream paper mills as well as the ineffective logistic system.
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