HWP Spot Market Likely to Hover at Highs Before the Spring Festival Holiday
Preview: Although the stockpiling ahead of the Spring Festival holiday is gradually weakening, and the HWP market trading decelerates, the market price is still supported by favorable factors such as maintenance downtimes at overseas pulp suppliers in Q1 and price hikes of Chinese-made HWP. The HWP market is likely to hover at highs before the Spring Festival holiday.
Demand weakens a pre-holiday stockpiling wrapping up
Since mid-December, the HWP spot market price stepped up backed by anticipated overseas maintenance and pre-holiday restocking. As of mid-January, the average HWP market price rose to RMB 4,759/mt, up RMB 366/mt or 8.34% MoM.
The restocking phase started earlier compared to previous years due to early Spring Festival in the lunar calendar as well as bullish pulp market prices. At present, the stockpiling at most paper mills has wrapped up, only a handful of small-sized paper mills are purchasing in small batches. Some paper mills have planned maintenance during the public holiday, and the pulp market demand is expected to narrow gradually, lending limited support to further pulp price hikes.
Supply is expected to tighten in Q1 due to overseas maintenance
Despite weaker market demand, the pulp market is supported by supply-side factors. In Q1, some overseas pulp suppliers like those in Brazil and Canda have planned or unexpected maintenance, and in addition to the slow down of logistics in China, the market supply is expected to tighten. Besides, the new round of wood pulp import offers have been raised. Arauco in Chinle has announced a $20/mt hike for BHK to $570/mt, while CMPC in Brazil raised the offer for BEK to $560/mt for Chinese buyers. The bullish import offers bring bullish expectations to the spot market in China.
Domestic pulp producers raised prices
In recent years, with constant new capacity release, China’s pulp import dependency has dropped somewhat, but prices of Chinese-made and imported HWP are highly correlated because they are mutual substitutes. The correlation coefficient between the two is as high as 0.95.
The order status for January at major pulp mills in China has been decent, and the volume available for market sales is also limited. As a result, domestic pulp mills have raised their offers by RMB 150-200/mt recently. Given the high price correlation, the price of imported HWP is also likely to remain bullish.
HWP price to hover at highs before the Spring Festival holiday
In conclusion, although the market demand is cooling down near the Spring Festival holiday, and the demand support gradually weakens, the market is still supported by anticipated tightening in import supply as well as rising Chinese-made HWP price. Thus, the HWP market price may hover at highs before the holiday. It is advised to pay attention to the new round of import offers and the order status of downstream paper mills.
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