Is the cyclical boom pushing weak assets to turn around? Industry insiders say positive signals are beginning to emerge

Cailian Press, March 1 (Reporter Luo Yichen) Under the current cycle of enthusiasm, strong-performing commodities such as non-ferrous metals and phosphate chemicals have surged significantly. As a traditionally weaker sector, the paper industry is also beginning to attract market attention, with major stocks like Nine Dragons Paper (02689.HK), Sun Paper (002078.SZ), Xianhe Co., Ltd. (603733.SH), and Bohui Paper (600966.SH) continuously closing higher on the monthly chart.

The upward expectation for the paper industry is heating up, but what is the actual fundamental situation?

Cailian Press reporters have learned through multiple interviews that there are indeed some signs of recovery in the paper industry. These are reflected in the frequent issuance of price increase notices by paper companies and increased attention from institutions. The demand for profit recovery among paper companies is also very strong. However, due to persistent demand pressure, the industry has not yet shaken off its competitive, inward-looking cycle. Several listed paper company executives have openly stated that it is currently difficult to determine whether the industry will turn bullish. Demand-side improvements are unlikely, and it is more probable that other bulk commodities are driving the trend.

In January and February this year, domestic white cardboard and household paper manufacturers successively began large-scale price hikes. Specifically, white cardboard prices were uniformly increased by 200 yuan/ton, and household paper by 100 yuan/ton, with new prices starting from March 1. This round of price increases has not yet been fully implemented, and the actual effect remains to be further observed. In recent years, during industry lows, it was common for price hikes of 100 yuan/ton to only be realized at 50 yuan/ton. Whether this round of price hikes can be fully implemented will be an important reference for assessing industry prosperity in the first half of the year.

Although paper companies claim that the price increases are due to rising raw material costs, the actual situation is that the domestic hardwood pulp spot prices have not risen but slightly declined recently. Industry insiders believe that this move by paper companies is more about restoring profits and leaving room for future pulp price increases.

It is reported that China’s paper industry relies heavily on imported pulp. From January to March this year, overseas pulp suppliers continued to raise prices for hardwood pulp. If shipping cycles and price transmission are normal, these price increases are expected to be transmitted to the domestic spot market within two months. Therefore, starting from March, domestic hardwood pulp prices are expected to rise, supporting subsequent price hikes by paper companies. Additionally, since raw materials like pulp and equipment are mainly settled in US dollars, some believe that paper companies may benefit from the recent appreciation of the RMB.

As a cyclical industry, the profit explosion of domestic paper companies generally comes from significant increases in raw material inventories due to soaring pulp prices. With inventories priced well below market value, paper companies gain substantial cost advantages, enabling them to achieve hefty short-term profits.

The last paper bull market began in 2020, when unexpected supply disruptions overseas caused pulp suppliers to continuously raise prices, initiating a bull run that lasted for two years. During this period, domestic paper companies benefited from inventory appreciation, experiencing a profit surge. However, both stock prices and profits peaked before 2021, as the depletion of low-cost inventories and high pulp prices began to erode profits. Since then, the paper industry has remained in a prolonged downturn.

This downturn is expected to last until 2025, with industry profitability remaining weak and under further pressure. The industry urgently needs to recover this year. A listed paper executive stated that the industry’s internal competition is severe, and companies are eager to restore profits. Considering that the industry has been in a downturn for too long, the probability of further decline is believed to be low. However, at present, competitive pressure has not eased. Another specialty paper manufacturer admitted, “The competition is still fierce, and prices are heavily affected.”

According to data from Zhuochuang Information, from February 20 to 26, prices of major paper types such as white cardboard, household paper, and cultural paper remained basically unchanged compared to the previous week. Whiteboard paper saw a slight decline. Downstream demand is still in the early stages of resumption, and further recovery is needed.