According to the Zhitong Finance APP, Huafu Securities released a research report stating that, according to Zhuochuang Information, SUZANO and Arauco have successively announced the February wood pulp prices, with the price of hardwood pulp in the Asian region increasing by USD 20 to USD 590 per ton (an increase of USD 20 in January). The rise in hardwood pulp prices in the external market supports the continuous firmness of paper prices, and the improvement in demand for base paper further benefits the rise in pulp prices. A "small spring" market in the paper-making sector is expected to form a resonance pattern between pulp and paper. Due to a certain lag in cost transmission, paper mills will enjoy the stage dividend of cost and paper price mismatch, and it is recommended to preferentially select high-prosperity sub-sectors, such as cultural paper and daily consumer specialty paper. In the medium to long term, as low-priced pulp is consumed, the cost advantages of leading companies with integrated pulp and paper layouts will become more significant.

The main points of Huafu Securities are as follows:

Event: According to Zhuochuang Information, SUZANO and Arauco have successively announced the February wood pulp prices, with the price of hardwood pulp in the Asian region increasing by USD 20 to USD 590 per ton (an increase of USD 20 in January). According to Zhuochuang Information and Europulp, the total inventory at European ports in December 2024 increased by 1.17% compared to November, and grew by 22.09% compared to the same period in 2023. According to customs data from Brazil and Chile, the export volume of hardwood pulp from Brazil and Chile to China in December 2024 was 86.11/19.85 million tons, with year-on-year changes of -6%/+46.3%, and increases of +47.2%/+36% compared to November.

Judgment: Downstream replenishment, pulp mill production cuts, and rising costs may be the reasons for this round of price increases.

Since the second half of 2024, with the new wood pulp production capacity from SUZANO and Liansheng Paper Industry coming online, coupled with weak demand for base paper, domestic hardwood pulp prices have weakened, and external market prices have dropped from USD 740 per ton in July to USD 550 per ton in December, a decrease of USD 190. The recent rise in pulp prices is mainly due to three reasons:

First, increased downstream replenishment since Q4 2024. According to ifind and customs data, the monthly import volume of hardwood pulp in China has continued to increase since Q4 2024, with December's import volume reaching 1.6974 million tons, up by 3.7% year-on-year and 24.7% month-on-month. Against the backdrop of no significant improvement in demand in Q4, the increase in wood pulp imports is mainly driven by downstream replenishment.

Second, production cuts at pulp mills. After experiencing a six-month decline and low-level consolidation, SUZANO announced a price increase for January in December and disclosed a shutdown plan for Q1 2025, marginally tightening the supply of hardwood pulp.

Third, rising costs for leading pulp manufacturers. According to SUZANO's Q3 2024 report, the cash cost of pulp production in Q3 2024 was 863 reais per ton (approximately USD 156), with year-on-year and quarter-on-quarter increases of 0.2% and 4.2%, respectively, mainly due to the increase in short-term operating funds, raw materials, and energy consumption after the new pulp mill commenced operations. Additionally, in November 2024, the total export volume of hardwood pulp from Brazil and Chile to China was 731,100 tons, a month-on-month decline of 40.7%. Assuming a shipping period of two months, it is speculated that the volume of hardwood pulp arriving in China in January 2025 will also decline significantly month-on-month The post-holiday peak season is approaching, focus on the improvement of downstream demand for base paper.

Since November, with the marginal recovery of supply and demand for domestic cultural paper and white cardboard, paper mills have issued multiple rounds of price increase notices. According to Zhuochuang Information, the average prices for double glue paper and white cardboard in December 2024 are 5,361 and 4,244 yuan/ton, respectively, up 4.5% and 2.1% month-on-month; in addition, at the end of December, domestic large-scale cultural paper enterprises issued another price increase notice for January-February 2025, with each round increasing by 200 yuan/ton. As of January 2025, the average prices for double glue paper and white cardboard are 5,410 and 4,300 yuan/ton, respectively, up 0.9% and 1.3% month-on-month. Looking ahead to February, after the Spring Festival holiday, the traditional bidding peak season for cultural paper will arrive, and it is expected that the industry's operating rate and pulp demand will improve accordingly, which is likely to support pulp and paper prices.

On the subject side

We recommend Sun Paper (002078.SZ), which integrates wood, pulp, and paper, and progresses with a variety of paper types, as well as Huawang Technology (605377.SH), a leading manufacturer of high-end decorative base paper with improved domestic sales expectations and increased dividend ratios. We also suggest paying attention to Xianhe Co., Ltd. (603733.SH) and Bohui Paper (600966.SH).

Risk Warning

Significant fluctuations in raw material prices, the implementation of price increases, and downstream demand recovery falling short of expectations, etc