HWP Price Trends Differ Around May Day Holidays in 2022 and 2023
As seen from the chart below, the market rose apparently around May 2022 due to constant supply-side disruption, logistics issues, futures market trends and the price co-movement between pulp and downstream paper. In contrast, due to mounting supply-side pressure and falling paper prices as well as insufficient demand recovery, the HWP price entered a steep downward trend. SCI’s data indicates that the monthly average spot market price of imported HWP was RMB 4,298.13/mt, down 20.73% M-O-M and 28.76% Y-O-Y.
HWP market analysis in April 2023
HWP price trended down under apparently higher supply pressure. In 2022, the supply of imported wood pulp tightened due to unexpected supply-side disruptions such as the strike in Finland, the postponement of the MAPA project in Chile and Suzano’s warning about supply stress. In March 2022, the pulp port inventory in Europe was 1,108kt, and that in China was 1,816kt. In 2023, the supply factor shows higher certainty. The MAPA project in Chile has started meaningful production, while UPM has planned shipments in May from its newly added project in Uruguay. Also, the pulp port in Europe hiked to 1,722.4kt in March (up 55.45% Y-O-Y), while that in China also climbed to 1,996.7kt as of late April (up 9.95% Y-O-Y).
Downstream paper prices went down Y-O-Y, restricting pulp prices. According to SCI, in April 2022, downstream paper prices were on an uptrend with M-O-M hikes of 0.14-1.16%. But in April 2023, paper prices generally went down by 2.34-10.56% M-O-M.
Downstream Paper Price Comparison
The BSK futures dominant contract price went down steeply, weighing on the spot market. On April 28, the SP 2309 contract price closed at RMB 5,048/mt, reaching the lowest point so far in 2023. The bearish futures market trend has affected participants’ sentiment and aggravated the spot market downtrend.
HWP market still suffers downward pressure after the May Day holiday
Key Driver Assessment
Demand expectation: Paper mills are to suffer higher sales pressure in May, and many have planned to lower operating rates to ease inventory pressure. The deceleration in paper production may further affect pulp consumption and spot sales.
Supply expectation: Newly added capacity in South America is released gradually, and the negotiation over additional volumes is already ongoing. Besides, as seen from the March HWP export volume from Brazil to China, China’s theoretical HWP import volume in May is expected to increase. Two local pulp mills in China have planned maintenance in May, but the influence will be relatively limited. Thus, the anticipated supply increase will put higher pressure on the HWP market trend.
Sentiment expectation: The influence of the BSK futures market may persist, and players' expectations vary. Most players hold bearish expectations, and it may indirectly affect HWP price trend in the spot market.
Cost expectation: Due to the influence of shipping time, the cash cost of spot resources in May is determined by the import price in March. Taking the offer from Arauco as an example, the offer for March volume was $690/mt. The comparatively high import cost may somewhat offset the downtrend in the spot market.
In conclusion, given steady supply and waning demand in May, the HWP price may continue to trend under pressure despite the support from high import costs. It is advised to pay attention to the influence of marginal cost lines between pulp varieties.
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