Institutions: Seize structural opportunities in the paper industry

Datong Securities believes that: 1) the paper products market is undergoing differentiated adjustments, and the leading companies’ prices are experiencing a temporary pullback. 2) pulp volume and pricing are running in a differentiated pattern, and pressure on the cost side continues to ease. 3) industrial policy coordination is gaining momentum, accelerating high-quality development in the industry. 4) focusing on the advantages of leading companies and highly entrenched subsegments, capturing structural opportunities in the papermaking industry. At present, the industry is in a resonance phase of paper price adjustments, cost improvement, and industrial upgrading; amid market differentiation, opportunities are emerging to find investment prospects with stable profitability and ample growth space. In the short term, the focus is on tracking the leading companies’ price-adjustment cadence, downstream customers’ procurement intentions, and the pulp price trend. If demand rebounds, the probability is relatively high. In the medium term, attention will be on the rollout of Guangxi’s forest-pulp-paper integration project, breakthroughs in industry technology, and the pace of profitability recovery.

Orient Securities believes that geopolitical conflicts are ongoing; “pulp prices performing stronger than paper prices in the upstream versus downstream” may be further reinforced. The market holds that, against the backdrop of demand pressure, the overall price pressure on the pulp-and-paper industry chain is likely. The pulp supply side is relatively fragile, so pulp prices are expected to remain strong, and the trend that “upstream pulp prices perform better than downstream paper prices” is expected to continue. 1) Pulp-and-paper segment: paper prices and profits are at historic lows, while the industry structure is still being optimized. At present, it is a small spring peak season for cultural paper, but unlike in the past, this year the paper-price peak season is not strong. 2) Recycled paper segment: after the holiday, replenishment inventory drives paper prices upward, but the sustainability still needs to be observed. After experiencing shutdowns during the traditional Spring Festival period, after the holiday, prices of domestic recycled waste paper, coated board, and corrugated paperboard showed a modest increase. 3) Looking at the short term, upstream pulp prices may perform stronger than downstream paper prices. For forward-looking positioning, leading paper companies that focus on upstream pulping may benefit from the low-cost dividend of self-supplied pulp, thereby widening the cost-side gap versus other paper companies that rely on externally purchased pulp within the industry. In the medium term, whether they have self-supplied pulp capacity may become a key yardstick for the industry’s next round of supply-side optimization. We are optimistic about paper companies that have actively positioned themselves in the upstream paper-pulp segment in the earlier stage.