How to repair the market of paper packing sector when the pulp price declines

February 28, 2023

In February 2023, the paper industry will face the double catalysis of price rise and cost decline, and the profitability of the industry will be gradually restored. From the perspective of cost, the quotation of some brands of broadleaf pulp was reduced by more than $60/ton in February; The domestic spot price was also reduced by 150-300 yuan/ton. From the price side, since February, white cardboard, Cultural Paper and some Special Paper categories have issued price increase letters, with bulk paper increasing by about 100-200 yuan/ton, Heat transfer paper increasing by about 1000 yuan/ton, and the price of waste paper products has decreased. From the inventory side, since November 2022, the inventory of all paper products has gradually declined, and there is a relatively obvious destocking of white cardboard and carton board. It is expected that the elasticity of replenishment demand brought by the recovery of terminal demand will provide support for the price rise of Packaging Paper, while the sales of cultural paper will enter the peak season of the first half of the year, and it is expected that the terminal sales will also drive the price rise to land.
The paper packaging sector has relatively obvious cyclical fluctuations, and the market changes of the sector reflect the changes in profit scissors caused by price and cost. The market changes since the resumption of trading in 2014, the upward stage of the share price of paper and paper packaging, mainly occurred after two time points: first, the pulp price hit the top and fell; Second, downstream demand bottomed out. These two time points respectively represent the release of the pressure on the cost side and the bottom recovery of the terminal demand, which are transmitted to the middle and upper reaches. They provide support for the price and sales, and the plate ushers in the bottom recovery market.

Looking forward to 2023, the paper and paper packaging sectors will have the double advantages of release of cost pressure and gradual recovery of demand. The market of the paper and paper packaging sector is earlier and more significant than that of the paper packaging sector, mainly because the bargaining power of the paper and paper enterprises is stronger than that of the packaging enterprises. From the perspective of the paper industry, the logic of product price rise and cost improvement will begin to be realized in February 2023, and the profitability of the industry will begin to improve. It is expected that the pulp price decline will continue to catalyze in the first half of 2023, and there will be a significant profit recovery in the second quarter of 2023. However, the paper packaging sector is still in the bottom stage of profit, and the short-term demand is relatively weak, and the price rise of the paper product costs squeeze the profit. The subsequent decline in pulp price will lead to the price adjustment of raw material packaging paper, and related companies may experience significant profit improvement.

From the perspective of elasticity measurement, in the pulp price decline stage of the paper industry, the profitability of the industry will hit the bottom and rise, and the profitability of special paper, household paper and white cardboard will be more flexible. Since the beginning of 2023, the profit recovery of the sector has been faster than the downward cycle of pulp price in 2018-2019. The main difference is that the demand in 2022 is weak, and the paper price has not been raised. The subsequent demand recovery will support the paper price. In February 2023, the paper price will rise at the same time as the pulp price decline. The profit in the fourth quarter of 2022 may have reached the bottom, and the link of pulp price downward transmission to profit improvement will be advanced to the beginning of 2023. Looking forward to the profit elasticity, assuming that the paper price is stable, it is expected that the higher the proportion of wood pulp business and the lower the proportion of self-prepared pulp, the greater the profit elasticity of the company. According to our calculation, the profit elasticity from high to low is special paper, household paper, white cardboard, and other bulk paper.

The paper packaging sector as a whole benefited from the cost improvement brought by the downward price of packaging paper, but there were differences due to the factors of bargaining power and the time and degree of profit improvement. From 2017-2018, the profit improvement of the paper packaging sector occurred about a quarter after the price of raw material packaging paper products fell. Due to differences in bargaining power, customers and other factors, in the paper packaging sector, companies that maintain growth in the industry, have stronger bargaining power, and have a better industry structure have begun to improve their profits in the process of the price decline of white cardboard and cardboard in 2022.

Author:

Mr. Ma Yanfeng

E-mail:

sandy@zhongzhi.cn

Phone/WhatsApp:

8615200088110