Uncoated Woodfree Paper Industry Sees Better Profits in Dec
In December, the uncoated woodfree paper gross profit rate recovered above the theoretical break-even level on the back of rising prices. Paper mills continue to push for price hikes in the following months, and the pulp price also shows signs of rebound. However, due to slower market trading near the Spring Festival holiday, the price and profit recovery may be restricted.
The theoretical gross profit rate rose first and then declined
In H1 of December, the wood pulp market price headed down in general, and the HWP price showed an apparent downtrend. In contrast, the uncoated woodfree paper price increased and went sideways. Due to the increase in price and decline in costs, the theoretical gross profit rate gradually recovered. However, the pulp price rebounded drastically by RMB 100-250/mt, while paper prices failed to keep up. As a result, the industry’s gross profit rate dropped. As of the end of December, the gross profit rate of the uncoated woodfree paper industry was 0.05%, up 1.27pp MoM.
Paper price hikes may decelerate, and changes in profit may be minor
Supply: Some paper lines may be restarted in January, but specific production status requires further observation. A 450kt/a new paper capacity has been started in Hunan, but it may see a limited ramp-up in the short term. Some medium and small-sized paper mills will commence holiday maintenance during the Spring Festival period. Thus, it is estimated that the uncoated woodfree paper operating rate may hover around 48-52% in January, and the anticipated market supply narrowing may lend support to the market price.
Demand: The market will be in a low period in January. Publishers have picked up sufficient volumes previously and may show low purchasing interest. Distributors and printers also start to close down after mid-January. As demand decreases, the paper price may lack upward momentum.
Cost: The wood pulp shipment arrivals may narrow around the Spring Festival period, but with the ramp-up of new capacity in the following months as well as slow capacity restarts at specific paper mills, the pulp price may lack sufficient support. However, the recent hike in import offers coupled with planned maintenance overseas has projected a positive influence on the market sentiment. Thus, the pulp price is expected to remain stable after upticks in January, and the monthly average price may see limited increases.
Revenue: Paper mills remain bullish, and many have announced consecutive price rises for the following months. However, restricted by decelerating market trading, the implementation of the price hike may be restricted.
In conclusion, the uncoated woodfree paper market is expected to see limited rises in January, and the pulp price is also unlikely to change notably. Therefore, the theoretical gross profit rate may see limited improvement in the short term, and slight downticks are possible due to rising pulp prices.
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