Tissue Market Fell Quickly After Trending Sideways in Q1
With the falling pulp prices, the gross profit rates of tissue mills recovered, prompting the industry’s operating rate. As supply ramped up, the tissue market fell drastically after trending sideways. In Q2, the falling pulp price may hardly lend cost support to the tissue market, but tissue mills’ profits may remain solid. Therefore, the production may remain firm, driving the tissue price further downwards.
The tissue market fluctuated narrowly in January and February but plunged entering March
In January, the tissue market saw limited changes. Tissue mills’ maintenance plans were relatively certain during the Spring Festival. Maintenance schedules in Hebei took place earlier compared to previous years, and some players also raised prices to stimulate market trading. As of late January, the wood pulp tissue jumbo roll price in Hebei was RMB 7,950/mt, and that in Shandong was RMB 7,800/mt. The bamboo pulp tissue prices in Sichuan and Chongqing were RMB 7,100-8,400/mt, and the cane pulp tissue price in Guangxi was RMB 7,300/mt.
In February, the tissue price was stable-to-decreasing, but the monthly average price edged up by RMB 20/mt compared to February. After the holiday, some downstream players restocked. In addition to uneven production resumption at tissue mills, the market supply was relatively limited. Therefore, the tissue price was held firmly. In mid and late-February, with the production resumption at tissue mills, the industry’s operating rate elevated, and the tissue price stepped down. As of late February, the wood pulp tissue jumbo roll price in Hebei was RMB 7,800/mt, and that in Shandong was RMB 7,800/mt. The bamboo pulp tissue prices in Sichuan and Chongqing were RMB 7,100-8,300/mt, and the cane pulp tissue price in Guangxi was RMB 7,400/mt.
In March, the tissue market price went down sharply. The market supply became increasingly abundant as tissue mills maintained high operating rates. Besides, the pulp price went down constantly, dragging the tissue price. As of late March, the wood pulp tissue jumbo roll price in Hebei was RMB 7,000/mt, and that in Shandong was RMB 7,250/mt. The bamboo pulp tissue prices in Sichuan and Chongqing were RMB 7,000-8,000/mt, and the cane pulp tissue price in Guangxi was RMB 6,900/mt.
In conclusion, the tissue price fell sharply after trending sideways in Q1, and the average tissue price from January to March was RMB 7,609/mt, down 14.06% Y-O-Y.
Tissue production cost fell more apparently compared to tissue price
Because of constantly falling pulp prices, the tissue production cost maintained a downtrend. The downtrend in the pulp market occurred prior to that in the tissue market, and the magnitude was apparently greater. From January to March, the tax-inclusive production cost of wood pulp tissue averaged RMB 7,784/mt, down 8.12% Y-O-Y. As the decrease in production cost went faster than the tissue price downtrend, the profitability of tissue mills recovered constantly.
Tissue mills ramped up production amid profit recovery
The tissue industry operating rate rose constantly in Q1 due to falling production costs and rising profits. In January, many went under maintenance, and the industry operating rate was low. From February to March, the tissue operating rate ramped up constantly to a sound level but fell slightly as inventory accumulated in H2 of March.
As market fundamentals continue to rebalance, the tissue price may continue to ebb in later months.
Cost: The upstream pulp market is still heading down, and the cost factor may hardly be supportive.
Supply-demand: On the supply side, due to anticipated capacity release in Q2 and passable profitability, the market supply may remain abundant. As for demand, consumption may be mild during the conventional slack season. Besides, as the price drops quickly, downstream players may hold up purchases in the first half of Q2. But during the second half, as players start stocking up for the labor day holiday and mid-year shopping fest, the market demand may recover slightly.
In conclusion, as supply and demand factors rebalance and cost support weakens, SCI estimates that the tissue market will maintain a general downtrend in Q2.
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