The Zhitong Finance App learned that Zheshang Securities released a research report saying that the Finnish Transport Workers Union went on strike on March 11, and several Finnish pulp mills, including Mesta Board, UPM, Stora Enso, and Kemi, announced the temporary suspension of production. Finland is the second-largest importer of coniferous pulp in China. In 2023, the import volume of coniferous pulp was about 1.88 million tons (accounting for about 20% of total acerola pulp imports). It is expected that some Finnish pulp mills will stop production, and the supply of coniferous pulp will be affected in the short term. Discontinuation of production or catalyzed a rise in pulp prices. The bank is expected to continue to increase prices for some pulp-based paper, and profit per ton is expected to remain steady.

The views of Zheshang Securities are as follows:

The strike in Finland affected fermentation, and some pulp mills temporarily stopped production, or supported the strengthening of slurry price fluctuations in the short term

The temporary shutdown of the Finnish pulp mill affected the supply of coniferous pulp for a short period of time. The Finnish Transport Union announced a two-week strike at terminals across the country starting March 11. Affected by transportation stagnation, several Finnish pulp and paper companies, including Mesta Board, UPM, Stora Enso, and Kemi, announced temporary suspension of production. Finland is the second-largest importer of coniferous pulp in China. In 2023, the import volume of coniferous pulp was about 1.88 million tons (accounting for about 20% of total acerola pulp imports). It is expected that some Finnish pulp mills will stop production, and the supply of coniferous pulp will be affected in the short term. Overseas pulp consumption has recovered, and domestic supplies may have declined.

Consumption in the European market has recovered (according to Utipulp, European chemical pulp consumption was 853,000 tons in February 2024, up 14% year on year). Combined with Red Sea supply chain restrictions, European specialty paper and cultural paper mills actively increased prices, wood pulp shipments returned to the European market to a certain extent, and imports of broadleaf pulp from the Chinese market declined. In February, exports of Brazilian broadleaf pulp to China declined year-on-year and month-on-month (according to the Brazilian Foreign Trade Network, Brazilian broadleaf pulp exports to China were about 600,000 tons, -25% year-on-year, and -13% year over year).

International pulp mills are more likely to push for growth. Pulp mills such as Suzano, Klabin, and Eldorado announced a price increase of 30 US dollars/ton in the Asian market in March, Asia Pacific Sembo announced an increase of 200 yuan/ton for broadleaf pulp orders in March, and Mercer announced a 50 US dollar/ton price increase for coniferous pulp in the Chinese market in April. Taken together, the strike in Finland was temporarily catalyzed, domestic shipments may have declined, external prices of superimposed pulp mills have increased, and spot prices of broadleaf pulp and softwood pulp have fluctuated strongly.

Discontinuation of production or catalyzes an increase in pulp prices. It is expected that the cost will support the increase in pulp and paper prices

According to Zhuochuang, as of March 15, the spot price of coniferous pulp had risen 270 yuan/ton from the beginning of February, and the spot price of broadleaf pulp had risen 398 yuan/ton month-on-month compared to the beginning of February. Cost support was strengthened, and the price of segmented pulp paper increased one after another. As of March 15, the average price in the double adhesive paper/coated paper market rose 243/100 yuan/ton from the beginning of February. Large-scale cultural paper mills continued to issue 200 yuan/ton price increase letters on March 15. The combined cost support during the peak season for tender orders strengthened, and the price increase is expected to be partially transmitted. White card paper and household paper increased by 25/100 yuan/ton respectively compared to the beginning of February. In terms of price increases in the narrow range of specialty paper, the price increase of glassine paper increased by 500 yuan/ton and transfer paper by 1,000 yuan/ton. The price increase basically covered the increase in cost. In anticipation of higher costs, some pulp-based paper prices will continue to rise, and profit per ton is expected to remain steady.

Investment advice:

We recommend an integrated pulp and paper leader with stable cash flow and dividends and leading cost support. Recommended high-quality Hakuba Asset Sun Paper (002078.SZ) (current PB is 1.7X, historical rating of 74%, 20-22 dividend rate of 18%, corresponding dividend rate 1.6%), white card paper leader Bohui Paper (600966.SH) (current PB is 1.2X, at 35% historical level); recommended stable increase in dividend rate, medium and high-end decorative raw paper faucet Huawang Technology (605377.SH) (corresponding to PE 13X in 23, corresponding dividend rate of 4.3%); special paper Xianhe Co., Ltd. (603733.SH) (corresponding to 23 year PE is 18X), a diversified specialty paper leader integrating pulp and paper, Wuzhou Special Paper (605007.SH) (corresponding to 23 year PE is 21X).

Risk warning: slurry prices fluctuate greatly; demand recovery falls short of expectations; concentrated production capacity investment