Dongfang Securities: The supply-demand game of broadleaf pulp intensifies, and pulp mills still have certain pricing power in the second quarter

According to the Zhitong Finance APP, Dongfang Securities released a research report stating that overseas core pulp mills have continuously raised the prices of hardwood pulp in the first quarter of 2025. With cost support and the upcoming peak bidding season, cultural paper is expected to continue its price recovery trend. The bank believes that the core driving force for the gradual rebound of hardwood pulp prices from the bottom in early 2025 is the recovery of China's pulp purchasing demand. It recommends the industry leader in integrated wood pulp and paper, Sun Paper (002078.SZ, Buy). Historically, special paper companies typically experience profit expansion within six months after pulp prices rise, recommending leading special paper enterprise Xianhe (603733.SH, Buy), high-end decorative base paper leader Huawon Technology (605377.SH, Buy), and food packaging paper segment leader Wuzhou Special Paper (605007.SH, Overweight).

Dongfang Securities' main viewpoints are as follows:

In the first quarter of 2025, global hardwood commodity pulp prices stabilize and rise, with China leading the price increase.

In the first quarter of 2025, overseas pulp mills raised hardwood commodity pulp prices for three consecutive months, with a total increase of USD 60/ton, exceeding previous market expectations. Against the backdrop of strong pricing power from pulp mills, the prices of hardwood pulp in the three major global pulp markets have shown a stabilizing and rising trend, but the actual increase varies. The spot price of hardwood pulp in China has risen by more than RMB 600/ton from its low point, significantly higher than the increases in Europe and North America (which are USD 20-30/ton and USD 5/ton, respectively), reflecting that the current supply and demand in the Chinese market is better than in Europe and the United States. Since March, under the continued price support from overseas pulp mills, domestic spot hardwood pulp prices have shown a slight adjustment, indicating that before significant improvements in profitability in the paper-making sector, domestic paper mills have relatively limited acceptance of rising hardwood pulp prices, leading to a stalemate between supply and demand.

The recovery of China's pulp purchasing demand is the core of this round of price increases.

The bank believes that the core driving force for the gradual rebound of hardwood pulp prices from the bottom in early 2025 is the recovery of China's pulp purchasing demand. From October 2024 to February 2025, the monthly average of hardwood pulp exported from Brazil and Chile to China reached 990,000 tons, even higher than the domestic pulp restocking phase in the second half of 2023 (monthly average of 930,000 tons). This is mainly due to the shutdown of Chenming Paper, which has brought an increase in demand for commodity pulp (about 200,000 tons per month, corresponding to a domestic demand growth rate of 15%) and the improvement in the prosperity of major pulp paper types such as household paper and cultural paper. On the supply side, starting in early 2025, global core pulp mills have maintenance plans, and there are also some unplanned shutdowns, which provide certain support for the rise in pulp prices. Against the backdrop of slight supply contraction and significant recovery in China's pulp demand, global hardwood pulp producers' inventories were close to historical lows by the end of 2024.

Short-term paper-making sector prosperity determines the pace of pulp price increases, while hardwood pulp prices have significant upward potential in the medium term.

In the short term, it is expected that pulp mills still have certain pricing power, and the external prices of hardwood pulp may still have an increase space of USD 20-40/ton: ① On the supply side, the marginal increase in global hardwood commodity pulp supply in the second quarter is limited (estimated at about 2%); ② On the demand side, Chenming's shutdown may continue, providing certain support for hardwood commodity pulp demand, and the negative impact of integrated paper machine production on hardwood commodity pulp demand is relatively limited in the short term, and domestic paper mills still have certain restocking space; ③ The inventory levels at pulp mills are at historically low levels. From a medium-term perspective, it is expected that there will be no new capacity for hardwood pulp globally from 2025 to 2027. The demand/capacity ratio for hardwood pulp may return to historically high levels in the next three years, and the blank period for capacity release on the supply side lays a solid foundation for a possible upward cycle in pulp prices.

Risk Warning

Risks of terminal demand falling short of expectations; risks of intensified international trade frictions; risks of changes in assumptions affecting calculation results