The Zhitong Finance App learned that Zhongtai Securities released a research report saying that the core driver of this round of pulp growth is European demand restoration+low inventories+capacity maintenance. Looking ahead to the future market, the additional production capacity of Suzano and Liansheng will be put into operation in June. It is expected that the commissioning of the new production capacity will put some downward pressure on pulp prices. An inflection point in pulp prices may occur at the end of Q2. In addition, considering paper companies' pulp inventory for about 2-3 months, it is determined that Q3 costs will be relatively high, and focus on companies with good price and cost control capabilities. At the same time, due to the fact that overseas demand is better than domestic demand, combined with inflationary factors, the costs of overseas paper companies are expected to be relatively high during the year, and the impact of imported paper will be small.
Recommendations: 1) The integrated advantages of forest pulp and paper continue to increase. The rise in pulp has less disturbance on the cost side and has a high degree of dissolving pulp prosperity (002078.SZ); 2) Huawang Technology (605377.SH) and Xianhe Co., Ltd. (603733.SH), which have a good segmented track pattern and strong price-saving ability.
The views of Zhongtai Securities are as follows:
The catalytic factors for this round of pulp growth: the core driver is European demand restoration+low inventory level+production capacity maintenance;
Demand side: European demand began to break out of the Russian-Ukrainian haze at the end of 23 and enter the repair cycle. The impact of the Russian-Ukrainian conflict on European pulp demand is mainly reflected in 1) reduced demand for downstream finished paper products; 2) high energy prices affecting the normal operation of paper mills. Affected by this, demand for pulp in Europe declined a lot in 23Q1-3. 23M2-M9 European pulp consumption totaled 6.09 million tons, -21% over the same period last year. 23Q4 With the restoration of Europe's overall economic environment, demand for pulp began to gradually improve. 24M1-M2 European pulp consumption was 1.686 million tons, +8% over the same period last year.
European inventories: Improved demand promotes rapid removal of port inventories, and pulp mill inventories are low. According to Utipulp data, as of 24M2, European port chemical pulp stocks were 676,000 tons, down 9.5% from December '23; the number of days in inventory fell from 29 days in December '23 to 26 days. Lower port inventory levels encourage European paper companies' willingness to pick up goods. However, judging from overseas pulp mill inventories, the number of pulp mill inventory days since 23Q3 has reached the bottom range, and there is not much pressure on pulp mills to sell, so there is a strong incentive for price increases.
Supply side: Capacity maintenance and the Red Sea incident reduced short-term supply. According to CPC statistics, several pulp mills, such as Suzano, CMPC, APP, and Arauco, have disclosed their shutdown and maintenance plans for the first half of the year, which affected the Q1 pulp production capacity of about 515,000 tons and the Q2 production capacity of about 475,000 tons. Furthermore, the Red Sea incident had a certain impact on pulp transportation costs and cycles, further leading to a tight supply in the short term.
Smooth price increases in Europe have led to a rise in domestic pulp prices.
Since 23Q4, the upward slope of pulp prices in the European market is higher than in the Chinese and US markets, and pulp prices in Europe and the US are already higher than in the Chinese market. Judging from Suzano's price, the monthly price increase in the European market from January to March '24 was 80 US dollars, while the increase in the Chinese market was between 10-30 US dollars. The cumulative increase was Europe > North America > China. The smooth increase in European and American pulp prices, in addition to downstream demand factors, is also affected by inflation (under the influence of inflation, the smooth prices of downstream paper mills will be relatively smooth). The price difference between the European, American and Chinese markets has caused pulp mills to increase the proportion of shipments to Europe and the US, which has a driving effect on pulp prices in the Chinese market.
Follow-up outlook: There is a lot of new production capacity and concentrated investment, and the inflection point of pulp prices at the end of Q2 may be now.
Suzano and Liansheng will be put into operation in June, with Suzano adding 2.55 million tons and Liansheng adding 1.7 million tons (partly for personal use). In the year 23 of the resumption of trading, after Q1 Arauco and UPM added production capacity (3.66 million tons in total), the price of pulp dropped sharply. The scale of additional production capacity in June of this year (considering only the commercial pulp portion) is expected to be close to Q1 in '23, and Liansheng mainly targets the Chinese market. It is expected that the new production capacity will put some downward pressure on pulp prices. An inflection point in pulp prices may appear at the end of Q2.
Investment advice: Determine the high cost of Q3 and focus on companies with good price and cost control capabilities. Considering that paper companies' pulp inventory is about 2-3 months, it is determined that Q3 costs will be relatively high. Focus on companies with good price and cost control capabilities. At the same time, due to the fact that overseas demand is better than domestic demand, combined with inflationary factors, the costs of overseas paper companies are expected to be relatively high during the year, and the impact of imported paper will be small.
Risk warning: the risk of fluctuating raw material prices, falling demand, production capacity falling short of expectations, untimely data updates, etc.