Pulp: Fourth Canadian Softwood Price Cut; Delayed Domestic School Opening Puts Seasonal Paper Demand to the Test

In the delivery game, the 2109 contract faced a limited pool of deliverable warehouse receipts, and funds gave clear support to the board during the delivery month. In the spot market, most of the 12 Shanghai Futures Exchange delivery brands kept their quotations unchanged, while suppliers of certain other brands lowered prices by USD 20-30 per tonne.

Canadian softwood pulp moved into a fourth round of price reductions: northern bleached softwood kraft (NBSK) was quoted at USD 820-860 per tonne, while Nordic NBSK stood at USD 800-860 per tonne; both were down USD 20 week on week.

Industry observation: China's ivory board capacity expansion has raced ahead of demand upgrading.

China imported 2.5 million tonnes of pulp in August, compared with 1.74 million tonnes in July.

Source: CITIC Jiantou Futures Research

Over the past half month, domestic pulp price increases failed to take hold; this week Chenming Paper again cut culture paper prices by 200 yuan per tonne. The key obstacle to higher prices is the ongoing retreat in overseas prices, while whether domestic demand will heat up still needs tracking. The industry generally still views current prices as high within a long cycle, which limits downstream restocking appetite.

A similar picture is unfolding overseas. With wood prices falling sharply and sentiment weakened by soft Chinese consumption feedback, Canadian softwood pulp saw its fourth recent price cut, down to CFR USD 840-860 per tonne. Even so, futures trading still leaned firm, reflecting expectations of a future demand recovery.

Fastmarkets RISI data show that roughly 3.79 million t of new market pulp capacity is planned worldwide in 2021, including some capacity shared with paper pulp, dissolving pulp and fluff pulp. Hardwood pulp accounts for nearly 90% of that new capacity, with start-up set to begin in the second half of 2021.

The later divergence, therefore, is whether the market re-trades actual demand or continues to trade future seasonal expectations. Current shipping conditions - high freight rates and possible forced delays to arrivals - do lend some support to bullish expectations, but conditions on the ground are not optimistic.

From a medium-term perspective, we have also noted a supply-side shift: ivory board capacity expansion.

Source: CITIC Jiantou Futures Research

Ivory board is white on both sides, with high smoothness, good stiffness, strong ink-absorption uniformity and folding endurance. Made entirely from bleached chemical pulp and fully sized, it can be single-layer or multi-layer and is suited to printing and product packaging, generally with a basis weight above 150 g/m².

If the paper industry has a hierarchy of prestige, ivory board sits upstream. Its name reflects its whiteness requirement: Grade A whiteness is no lower than 92%. Ivory board is commonly used for commodity packaging, backing liners and similar applications, and can also be printed directly as business cards and greeting cards. From 2016 to 2020, China's ivory board output trended upward overall, rising from 6.92 million tonnes in 2016 to 9.02 million tonnes in 2020. By the end of 2020, China had 21 ivory board producers, 32 production lines and annual capacity of about 13 million tonnes.

Under the industry's earlier consensus on the plastics restriction order, demand for paper packaging products represented by ivory board, white kraft paper, linerboard and corrugated paper is set to rise significantly, making paper products a key force in replacing plastics.

Based on estimated substitution demand for non-degradable plastic packaging in food delivery and supermarket retail, the market expects that by 2025 ivory board could replace as much as 2.34 million tonnes of single-use plastic tableware in food delivery, and up to 1.17 million tonnes of non-degradable plastic bags in retail settings such as supermarkets and pharmacies.

With support from the plastics restriction order and the Food Safety Law, the industry expects total substitution demand for plastics by ivory board to reach as much as 3.5 million tonnes in 2025.

Driven by favorable demand expectations and earlier high industry profits, capacity construction is accelerating. Industry data estimate that new capacity over the next five years will exceed 17 million tonnes, equal to 1.3 times existing capacity at the end of 2020.

Source: compiled from public information; CITIC Jiantou Futures Research

Although paper grades led by ivory board will benefit from future substitution for plastic products, demand release remains slow and new-capacity expectations remain uncertain. In today's market, for example, data show downstream papermaking and paper products are experiencing their worst same-period profit in at least five years: July industry profit was only 4.54 billion yuan, versus 6.99 billion yuan in June and 6.32 billion yuan a year earlier. In our view, this is a main reason paper mills have recently stepped up large-scale maintenance.

Looking at the current market game, and taking into account global bleached softwood pulp capacity constraints and the future value of forest carbon sinks - mainly reflected in the very long growth cycle of bleached softwood raw materials such as spruce, Douglas fir, Korean pine, larch and radiata pine, whose height growth within 10 years of planting is very limited and cannot ramp up quickly in the short term - we remain optimistic about bleached softwood pulp going forward.

The short-term game depends heavily on pessimistic expectations from falling overseas wood raw material prices and on whether seasonal demand at home and abroad materializes. Overall, however, high social inventory of paper products will cap any rebound, and the industry has already shown a clear inventory-cycle switch from active restocking to passive stock-building. We therefore remain cautious on the current rebound and stress the risk of demand stalling and a peak season that fails to peak.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378245.html