Imported HWP Spot Market Continued to Drop in Nov
Intro: In November, the imported HWP spot market price went down MoM due to falling import costs and rising imported and domestic supply. The HWP supply-demand balance may see limited improvement in December, and the cost support to the pulp price has softened. In addition to RMB depreciation and persistently low paper profit levels, the HWP price may still face downward pressure.
Lower import costs coupled by rising import volume
The HWP import offer has been lowered consecutively since June, and the import costs also edged down. SCI estimates that the theoretical import cost for imported HWP shipments in November is RMB 4,763/mt, down 0.06% from that in October. The unapparent decrease is mainly due to recent depreciation in RMB exchange rate. On the other hand, the HWP shipments from major suppliers to China jumped by 198.6kt in September, so the import volume is expected to rise in November, weighing on the market price.
Supply-demand imbalance expanded in November, dragging down HWP price
In November, the performance of the paper market has been sluggish overall, and a major integrated players went under extensive downtimes, affecting wood pulp consumption. The import volume is expected to increase with better shipment arrivals at ports. However, due to previously mentioned downtimes, as well as instability of production at the newly added capacity, the domestic production is expected to drop by 8.9% MoM. As a whole, the monthly pulp supply will likely edge down by 2.5% in November given extensive domestic downtimes and rising imports. However, the pulp demand is expected to drop by 5.6% MoM due to downtimes at paper lines.
Expanding spread between SWP and HWP prices may buffer the price drop
As of late November, the monthly average imported HWP spot price continued to drop by 3.6% MoM to RMB 4,519/mt, while SWP prices remained resilient. As a result, the price spread between the two continued to expand. By late November, the price gap reached RMB 1,707/mt, up 9.15% MoM. The notable price gap between SWP and HWP may buffer the HWP price drop in the future.
HWP price still suffer downward pressure
In summary, the HWP price may be stable-to-decreasing in the short term under the influence of multiple bearish factors such as insufficient fundamentals improvements, waning cost support and RMB depreciation, but some other factors such as the significant SWP-HWP price gap may buffer the price drop.
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