According to the Securities Times app, China Galaxy Securities released a research report stating that the demand side of the pulp and paper industry is weak, coupled with concentrated capacity expansion, the supply and demand contradictions continue to be under pressure, and prices continue to decline. Subsequently, as recent economic policies are gradually implemented, and with further future policy efforts, overall economic and end demand are expected to improve, potentially initiating a new upward cycle. At the same time, the early rise in pulp prices in 2024 led to a decline in enterprise profits in Q2 2024, which is expected to continue affecting Q3 2024, and the downward trend in pulp prices from mid to late May is expected to improve the Q4 2024 financial statements.

China Galaxy Securities' main points are as follows:

Raw materials: As of October 11, 2024, the daily external market prices for Arauco softwood pulp (silver star) and Arauco hardwood pulp (bright star) in the main Chinese ports were $765 and $570 per ton, up by +4.79% and -1.72% year-on-year, and unchanged and -1.72% month-on-month, respectively. On October 12, 2024, the daily average prices of softwood pulp, hardwood pulp, and dissolving pulp in China changed by -0.72%, -15.47%, -22.15% year-on-year, and by +3.25%, -0.57%, 0% month-on-month. As for waste paper, on October 12, 2024, the daily average price of Chinese waste yellow board paper grade A compared to the previous year was -6.52%, and -1.28% month-on-month. In September, the prices of imported American waste 12# recycled fiber pulp in Southeast Asia continued to decline, with mainstream offers in the market at $280-290 per ton.

Cultural paper: On October 12, 2024, the daily average prices of Chinese art paper and coated paper decreased by -13.49% and -6.46% year-on-year, and by -1.53% and -0.18% month-on-month, respectively. Orders for publishing releases were delayed compared to previous years, with market demand in September not increasing as expected, weak essential support, poor performance of social orders, and overall demand showing signs of weakness. Meanwhile, the continuous decline in pulp prices led to insufficient cost support, exerting a certain impact on cultural paper prices. In the future, with the further advancement of publishing bidding work, essential orders are expected to see a phase of incremental growth, with November possibly entering the essential order delivery period, but overall demand improvement is expected to be limited.

White cardboard: On October 12, 2024, the daily average price of Chinese white cardboard decreased by -12.68% year-on-year, and -2.89% month-on-month. A large amount of white cardboard production capacity has been put into operation, with an average annual capacity growth rate exceeding 10% from 2023 to 2025, leading to continued increased competitive pressure. In the short term, in terms of supply, 1.2 million tons of new capacity in South China is planned to start after the National Day holiday, increasing market supply; although some orders for Singles' Day, Christmas, and New Year are being gradually released, overall market demand increment is expected to be lower than the supply increment, potentially increasing market supply and demand contradictions.

Corrugated cardboard: On October 12, 2024, the daily average prices of Chinese corrugated paper and boxboard paper decreased by -12.72% and -6.51% year-on-year, and increased by +0.36% and -0.12% month-on-month, respectively. The peak season demand performance is weak, early September market supply and demand was basically balanced, but in the latter part of September, as Mid-Autumn Festival orders ended, the decrease in demand led to a decline in consumption, gradually expanding supply and demand pressure. High inventory levels may continue to pose certain pressures later; in September 2024, the monthly company inventory levels for Chinese corrugated paper and boxboard paper were at 91.3% and 96.5% based on percentile rankings since 2015.

Tissue Paper: On October 12, 2024, the daily average price of wood pulp tissue paper in China decreased by -5.99% year-on-year and -0.53% month-on-month. The main factors affecting the price trend of tissue paper are: 1) The northern region has a good market pace, paper companies have smooth shipments, and prices are trending upward under active promotion. However, due to the need to clear inventory, some regions are offering discounts at the end of the month; 2) Affected by the decline in raw material prices, although sales in the southern market have improved, the lack of strength in price increases has led to a relatively stable market focus.

Recommendations on Symbols: Leading pulp and paper companies Shandong Sun Paper (002078.SZ), yueyang forest & paper (600963.SH), leading household paper companies hengan int'l (01044), c&s paper co., ltd. (002511.SZ), leading specialty paper companies hangzhou huawang new material technology (605377.SH), xianhe co.,ltd. (603733.SH), wuzhou special paper group (605007.SH).

Risk Warning: Risks of downstream demand falling short of expectations; Risks of significant increase in raw material prices; Risks of intensified industry competition.