Financial Services Association, April 20 (Reporter Luo Yichen) “Due to the sharp rise in pulp board prices, our costs have increased dramatically. At the same time, it was difficult to raise prices in the finished product market, and the company suffered unprecedented losses and decided to stop production and maintenance of the No. 1 and No. 2 paper machines.” Recently, several household paper companies in Hebei issued shutdown notices.

According to people in the industry, the shutdown at this time is a helpless act of “production limit insurance.” A Financial Services Association reporter noticed that after the news of the shutdown was announced, there were no significant fluctuations in prices or trading conditions in the household paper market. On April 18, Hebei Puxin Paper took the lead in issuing a price adjustment letter calling for a “100 yuan/ton increase in the price of raw paper,” but they are not optimistic about whether it can be implemented.

Hebei Puxin Paper Price Adjustment Letter, Source: Internet

In fact, since this year, the cost of pulp has been rising steadily. Household paper manufacturers have raised prices several times, but the implementation situation is not ideal. “There have been many calls for price increases, but last year the highest of raw paper reached 8,300 yuan/ton in the first quarter, and this year it only rose to 6,900 yuan/ton. The cost of pulp did not change much during the same period, so profits actually shrunk drastically.” Zheng Nan, an analyst at Longzhong Information, said in an interview.

Household paper is only a microcosm of the current plight of the paper industry. CFC reporters learned from many sources that white cardboard and cultural paper are all impacted by high costs and insufficient demand. Although price increases continue, profit levels have all declined year over year, to historic lows. The industry generally believes that if unfavorable factors continue, the outlook for paper companies in Q2 will be difficult to be optimistic.

Paper companies cut production and shut down to cope with pressure

Since this year, pulp as a commodity has continued to strengthen, pressure on domestic paper companies has doubled, and many types of paper are struggling below the profit and loss line.

“Simply calculated based on the open market price, the price of broadleaf pulp has risen by about 600 yuan per ton since this year. In the same period, the price of household paper has only risen by 300 yuan/ton, and the price has already been reversed. Of course, medium and large paper companies are more Changxie pulp and have a long inventory cycle. It is not ruled out that medium and large paper companies are still profitable, but compared to the first 4 months of last year, the overall profit of tissue paper has definitely declined significantly.” Zheng Nan said.

In the same period, although there were no large-scale shutdowns and maintenance of cultural paper and white cardboard, news of paper companies' production cuts still came out from time to time. According to data from Zhuochuang News, since entering April, with the price of pulp rising again, the pressure on paper companies has increased sharply. According to public data estimates, the gross margin of double adhesive paper has fallen to a negative number, and coated paper is also struggling at the profit and loss line.

In addition to shrinking gross profit, paper companies are also facing inventory backlogs. A reporter from the Financial Services Association learned that in April, sales and shipments from domestic paper mills all faced varying degrees of slowdown, causing paper companies' inventory backlogs, shrinking profits, compounding inventory pressure. The entire paper industry is “rising in people's minds”, and there is an urgent need to use price increases to increase sales and increase profits.

Pulp companies are strongly shouting to boost the market

Unlike the suffering of downstream paper companies, upstream pulp companies are enjoying the dividends of the bull market to the fullest. According to the latest news, Brazilian pulp company Suzano once again raised the price of eucalyptus pulp in May. Prices for the Asian market increased by 30 US dollars/ton, and the European and North American markets by 60 US dollars/ton and 80 US dollars/ton respectively.

CIFA reporters have learned from many sources that this round of rising pulp prices has seen a new situation: demand in the European and American markets has recovered, supporting the high-priced pulp market. “In communicating with overseas pulp companies, I can clearly feel that their intention to raise prices is very firm. Anyway, prices in the European and American markets are higher, so I'm not worried that no one is buying pulp.” A pulp industry insider said.

Also, according to a brokerage source, judging from the structure of international pulp shipments, the share of shipments to China is declining, while the share of shipments to Europe and the US is increasing. Prices in Europe and the US are indeed higher, which also confirms that the European and American markets are recovering.

It is worth noting that the attitude of overseas pulp companies has changed drastically in recent years. In the first half of 2023, the Finance Association reporter learned that overseas pulp companies had taken the initiative to visit leading domestic paper companies to send positive signals, but with the recovery of the European and American markets, in this round of price increases, the attitude of overseas pulp companies is clearly tougher.

According to reports, the background of this round of the pulp bull market is a massive global upward trend. Furthermore, since the beginning of March, breaking news such as strikes and accidents has continued to break out overseas, triggering expectations of tight supply, and leading to a rise in pulp prices.