Pulp Prices to Trend Under Pressure as Market to Rebalance

SCI99

2022-12-01

Pulp Prices to Trend Under Pressure as Market to Rebalance

Intro: Since Q4 2022, the imported wood pulp spot market in China hovered at highs backed by the under-expectation wood pulp import volume, and high import costs. But as downstream paper gross profit is under pressure, SCI reckons that the wood pulp spot market price continues to edge down in late Q4.

Imported wood pulp spot market prices hover at highs.

In contrast to that in 2021, the wood pulp spot market price hovered at highs in Q4, 2022. SCI data indicates that, as of late November, the average wood pulp spot prices were 13.11%-45.05% higher Y-O-Y.

The 2022 pulp spot market trend went above maximum historic levels

The imported SWP spot market price in Q4 2022 went above the 5-year maximum price level, but it deviated slightly from the traditional seasonality. Q4 is packed with holidays and e-commerce shopping fests and is usually the consumption peak season of P&W paper, ivory board as well as pulp. The highest average price appeared in October 2022, and the market started to trend down in November. The downward trend occurred one month ahead of that of the 5-year maximum price level mainly due to the profit and demand squeeze of downstream paper industries.

Supply and demand both increased, but the demand growth was weaker

According to SCI, the monthly wood pulp output of sample pulp mills in October was 1,190kt, up 3.51% M-O-M and 22.2% Y-O-Y. The wood pulp import volume was 1,760kt, down 12.68% M-O-M but up 2.46% Y-O-Y. The wood pulp port inventory was 1,890kt, up 7.38% M-O-M and 2.39% Y-O-Y. During the traditional demand peak season, the wood pulp consumption of sample enterprises was 2,620kt, up 12.40% M-O-M and 32.22% Y-O-Y. The wood pulp import dependence degree was high, and the import growth was insufficient. But due to high inventory, the demand increase was still weaker than that of supply, weighing on the pulp price.

Wood pulp import price went apparently higher Y-O-Y, affecting the cost factor

Taking imported SWP as an example, the cost of imported SWP in November was RMB 465/mt higher than the spot market price. Although the import offer for November Arauco BSK volume was lowered slightly by $30/mt to $940/mt, it was still at a high level. The import cost pressure may continue to affect the spot market trend given the high industry concentration ratio overseas.

Paper price hikes were below the expectations

The paper price hikes in Q4 slacked behind the increase in feedstock prices, squeezing the profitability of local paper mills. According to SCI, as of late November, downstream paper prices went up by RMB 351-1,561/mt, while wood pulp prices went up by RMB 826-2,253/mt. The theoretical gross profit rates of downstream paper industries ranged from -18% to 10% but had all dropped by 4%-39% Y-O-Y.

Wood pulp prices may trend under pressure for the rest of 2022

On the supply side, the HWP volume from the new MAPA project will hardly arrive in China in 2022. Besides, the wood pulp import volume may be lower than expected, which may proved certain support to the wood pulp spot prices.

In terms of cost, import prices continue to hover at highs, and the price drop is slower than participants’ expectations.

On the demand side, paper mills in China lack confidence in the paper demand in Q4. In addition to the squeezed profitability, some have planned to shut down for maintenance, which may affect pulp demand.

As for market sentiment, participants’ expectations on the pulp futures trend deviate, and the chasm between buyers and sellers may remain for the rest of 2022.

In conclusion, the market will continue to rebalance from the perspectives of supply, cost, demand and sentiment. As participants tend to stay on the sidelines, the imported wood pulp spot market may trend under pressure.

All information provided by SCI is for reference only, which shall not be reproduced without permission.

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