Tissue Market to Suffer Pressure Under Multiple Bearish Factors in Jun
Intro: Downside macroeconomic factors persisted in May. Continued declines in raw material pulp prices, coupled with the commissioning of 270kt/a of newly added tissue capacity and high inventory level, the tissue market remained in a bearish trend. In June, the tissue market fundamentals may still impose drag, and the pulp price is expected to hover at lows, affecting the tissue market. However, tissue mills’ resistance to further price drops may buffer the downtrend.
Tissue prices followed a downward trend in May
Tissue prices trended downward in May, with the monthly average tax-inclusive price at RMB 5,729/mt, down 3.78% MoM and 12.87% YoY. In early-mid May, the bearish impact of the reciprocal tariffs led to cautious sentiment at downstream converting plants, and they maintained essential purchases. Thus, the tissue market generally went down. In mid-May, as the macro environment started to improve, tissue market sales saw marginal recovery. As of late May, the tissue average market price stood at RMB 5,688/mt, down 2.78% MoM.
Inadequate supply-demand improvements sustained downward pressure
The newly added capacity continued to drive marginal output increases in May. SCI data suggests a total of 270kt/a of new tissue capacity came online within the month, and most were located in Hebei, Shanxi, Gansu, Hubei, Guangdong, and Guangxi. However, market competition intensified following deepened market overcapacity, forcing some tissue mills to implement downtime or output curbs. Thus, despite notable capacity addition, the monthly output only increased by 1.45% MoM.
Demand showed slight improvement but lacked strong momentum. Mid-late May saw better export orders amid tariff relief, gradually improving the demand outlook. However, as exports account for a small share of the tissue demand, and producers’ inventory has accumulated to a high level earlier in May, the inventory pressure still restricted tissue prices. By end-May, tissue mill inventories rose approximately 0.25% from April. Overall, while demand recovered moderately in May, persistent supply pressures continued driving tissue prices downward.
Weak seasonality may sustain a market downtrend in June
Historical seasonal patterns indicate June typically sees tissue price declines due to traditional low consumption and weaker demand support.
Supply pressure continues as new capacity ramps up. SCI forecasts an additional 80kt/a tissue capacity to come online in June, on top of the 270kt/a added in May. Coupled with a high pulp inventory, the high market supply will maintain bearish pressure on tissue prices.
The market may see limited demand support during the traditional slack season in June. Despite the demand hike before the mid-year shopping fest, the market trading may quickly cool down in H2 of the month. The demand factor may lend minor support to the tissue market in general.
Pulp prices are to hover at lows, and the cost factor may see limited changes. Arauco has announced no HWP volume available for June, and market pulp suppliers are less willing to lower prices, so the HWP price may see some resilience in the short term. Besides, due to persistent operating losses at tissue mills, they were reluctant to lower tissue prices further.
Considering seasonal downtrends, ongoing supply-demand imbalances, contained cost fluctuations, and tissue mills’ resistance to price cuts, the tissue market is likely to decline further, though within a limited range.
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