In February 2023, the papermaking sector will usher in the double catalyst of price increase and cost decline, and the profitability of the sector will gradually recover. From the perspective of cost, the quotation of some brands of hardwood pulp was lowered by more than 60 US dollars/ton in February; the domestic spot price was also lowered by 150-300 yuan/ton accordingly. From the price point of view, white cardboard, cultural paper, and some special paper categories have issued price increase letters since February. Product prices have been lowered. From the perspective of inventory, since November 2022, the inventory of various paper products has gradually declined, and there is a relatively obvious destocking of white cardboard and cardboard paper. It is expected that the elasticity of replenishment demand brought about by the recovery of terminal demand will have an impact on the price of packaging paper. Provide support, and cultural paper sales are about to enter the peak season in the first half of the year, and it is expected that terminal sales will also drive price increases to the ground.
The papermaking and packaging sector has relatively obvious cyclical fluctuations, and market changes in the sector reflect changes in the profit scissors formed by prices and costs. Reviewing the market changes since 2014, the stock price rise of the paper and paper packaging sectors mainly occurred after two points in time: first, the price of pulp peaked and went down; second, downstream demand bottomed out and picked up. These two time points respectively represent the release of the pressure on the cost side and the bottoming out of terminal demand, which is transmitted to the midstream and upstream, providing support for prices and sales, and the sector is ushering in a profit bottoming out and repairing the market.
Looking forward to 2023, the paper and paper packaging sectors will benefit from the release of cost pressure and the gradual recovery of demand. The market of the paper sector is earlier and more significant than that of the paper packaging sector, mainly due to the stronger bargaining power of paper companies than packaging companies. From the perspective of the papermaking sector, the logic of product price increases and cost improvements will begin to materialize in February 2023, and the profitability of the sector will begin to improve. It is expected that the decline in pulp prices will continue to catalyze in the first half of 2023, and there will be a significant profit recovery in the second quarter of 2023. However, the paper packaging segment is still in the bottoming stage of profitability, the short-term demand is relatively weak, and the cost of paper products is partially rising to squeeze profits. The subsequent decline in pulp prices will bring about price adjustments for raw material packaging paper, and related companies may usher in a significant improvement in profitability.
From the perspective of elastic calculation, the profit of the papermaking sector will bottom out during the period of pulp price decline, and the profit improvement of specialty paper, tissue paper and white cardboard will be more elastic. Since the beginning of 2023, the profit recovery of the sector has been faster than the downward cycle of pulp prices in 2018-2019. The main difference is that the demand in 2022 will be weak, and the paper price will not increase. The subsequent recovery in demand will bring support to the paper price. The price of paper products has risen at the same time as the price is falling. The profit may have bottomed out in the fourth quarter of 2022. The link from the downward transmission of pulp price to the improvement of profit will be brought forward to the beginning of 2023. Looking forward to the profitability elasticity, assuming that the paper price is stable, it is expected that companies with a higher proportion of wood pulp business and a lower proportion of self-owned pulp will have greater profitability elasticity. According to our calculations, the profitability elasticity from high to low is special paper, Household paper, white cardboard, other bulk paper.
The paper packaging sector as a whole benefits from the cost improvement brought about by the decline in packaging paper prices, but there are differences in bargaining power factors, profit improvement time and degree. From 2017 to 2018, the profit improvement of the paper packaging sector appeared in about a quarter after the price of raw material packaging paper products dropped. Due to differences in bargaining power and customers, in the paper packaging sector, companies that maintain growth in the industry, have stronger bargaining power, and have a better industry structure will start to improve their profits during the price decline of white cardboard and containerboard in 2022.
