Agricultural products: bullish speculation cooling, where to go from the price of pulp

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01 Analysis of recent pulp price trends

Recently, pulp prices have soared and fallen, and the overall fluctuations are large. Since the fourth quarter, due to the poor overall performance of domestic demand, the price of finished paper has continued to decline, and the downstream operating rate affected by the dual control policy has also dropped to a historical low in the same period, making the pulp price fall all the way to the low point of the year, with the lowest falling below 4700 yuan / ton. However, in late November, due to the floods in Canada and the epidemic in Manzhouli, Inner Mongolia, pulp futures rebounded strongly, quickly climbing above the 6,000 line, with a cumulative increase of 25%. However, after a continuous sharp rise, the bullish speculation has cooled down in recent days, and the high level of pulp futures has fallen back, falling nearly 500 points in three trading days, and the spot price has also fallen sharply with the futures price.

02 Pulp fundamental market analysis

1. International supply continues to be disturbed, and pulp prices are still supported in the short term

Due to the high dependence of China's pulp on foreign countries, especially softwood pulp, which is almost 100% dependent on imports, under the continuous disturbance of the international supply side news surface recently, pulp futures rose for 12 consecutive trading days in December, becoming the focus of market attention.

In mid-November, flooding in Canada blocked some road and rail transportation in B.C., severely affecting timber and pulp transportation and pulp mill operations, and local pulp mills in Canada announced new suspension plans and price increase plans. Canada is China's largest source of bleaching needle pulp imports, and has greater pricing power over China's softwood pulp, so the Canadian supply chain problem has triggered domestic bull speculation, driving the pulp futures price to rise rapidly. In addition, the recent outbreak of the epidemic in Manzhouli, a land port city in Inner Mongolia, because the epidemic is caused by imported goods, the Manzhouli Railway Port suspended the import of non-container goods that require manual loading and unloading. The epidemic prevention and control has blocked the transportation routes imported from Russia to China, adversely affecting the import of timber and wood pulp in China, and further promoting the continuous rise in futures prices.

The impact of short-term news is still continuing, and until the international supply problem is resolved, pulp prices are still supported in the short term, and there is a possibility of rebound. However, when the supply-side speculation enthusiasm subsides, if the demand does not improve significantly, the pulp rise may be difficult to sustain.

2. The quotation of imported softwood pulp outer disk is stable

In November, the softwood pulp outer disk quotation continued to decline, basically maintaining at 710-740 US dollars / ton. Affected by the Canadian supply chain problem in December, the Chilean Silver Star Outer Disk rose by $10 to $720 / ton, and the Russian Pulp Outer Disk quotation in January was 810 US dollars / ton, up 100 US dollars / ton from the previous round, and the Canadian outer disk was flat. Overall, although the market in the early stage of the market is pessimistic about the future market trend expectations, but as the Canadian supply problems become more and more intense, domestic pulp futures rose sharply, and the softwood pulp outer disk quotations in December also stopped falling and stabilized, and there is an upward momentum, and market confidence has been boosted.

3. The import volume of softwood pulp is expected to remain stable

According to customs data, in November 2021, China imported a total of 2.653 million tons of pulp, with an import amount of 1883.7 million US dollars and an average unit price of 710.0 US dollars / ton. From January to November, the cumulative import volume of pulp was 28.012 million tons, down 0.8% from the same period last year. In the first half of this year, domestic pulp imports have been maintained at a high level, but in the second half of the year, pulp imports have dropped sharply year-on-year, mainly due to the weaker expectations of foreign quotations, domestic traders and pulp mills to reduce procurement, mainly to digest inventory.

By category, the import volume of hardwood pulp in October accounted for 40.5% of the total pulp imports, ranking first; the import volume of softwood pulp accounted for 28.6% of the total pulp imports, ranking second; the import volume of chemical machine pulp accounted for 4.6% of the total pulp imports; the import volume of natural color pulp accounted for 2.7% of the total pulp imports.

From the perspective of the whole year, the overall fluctuation of softwood pulp imports is small, and the monthly import volume basically fluctuates between 650,000 and 800,000 tons. The follow-up softwood pulp has almost no new supply, and it is expected that the total import volume of softwood pulp in China will not change much in 2022.

4. Domestic pulp port inventory remains high

In 2021, the domestic pulp port inventory will maintain horizontal fluctuations, the overall change is small, and it is currently at a high level in recent years, and the speed of destocking is still relatively slow. As of the end of November, the total pulp inventory of Qingdao Port, Changshu Port and Baoding In China was 1.807 million tons, an increase of 2.09% over the previous month; the pulp inventory of Qingdao Port, Changshu Port, Baoding Area and Gaolan Port in China totaled about 1.8743 million tons, an increase of 2.4% over the previous month.

5. The downstream demand has not improved significantly, and the support of the future market pulp price is insufficient

The overall performance of the cultural paper market this year is weak, affected by the less than expected recovery in demand and the "double reduction" policy of students, whether it is double adhesive paper or coated paper production and sales have declined significantly, and prices and output have reached a historical low at the end of September this year. In November, the operating rate of double adhesive paper production enterprises rebounded, production returned to the average level of previous years, and spot prices also rebounded, but the overall downstream trading improvement was limited, and orders were flat. The load of coated paper started in November rebounded significantly from the previous month, but it is still at the lowest level in the past five years. At present, the inventory of coated paper enterprises is still high, the pressure is still there, and the downstream printing plants maintain just demand, and the demand is insufficient. Although some paper companies have issued price increase letters, the market response has been flat, and the implementation has yet to be considered.

In terms of wrapping paper, the price of white cardboard fluctuated in a narrow range in November, and the local tentative increase. White cardboard has rebounded, orders, foreign export orders have recovered, paper mill orders are full, but the overall domestic demand is not much, and the new production capacity in Guangxi is about to be launched, supply pressure is expected to increase, and the downstream is more wait-and-see mentality.

In terms of household paper, boosted by the demand for double eleven stockpiling, the operating rate of household paper increased most significantly in November, which is now higher than the same period last year. However, with the increase in the production enthusiasm of manufacturers and the recovery of supply-side pressure, the current inventory of enterprises is also at a historically high level, which has made the recent focus of household paper prices move down.

Due to the recent sharp rise in the price of raw pulp, the profit margins of the downstream have been greatly compressed, and the profits of various downstream paper varieties have recently shown signs of turning downward. Although downstream paper mills have successively issued "price increase letters" to deal with the problem of excessive rise in raw materials, the current degree of downstream acceptance is not high, and the specific implementation needs to be further examined.

03 Investment Logic and Trading Strategies

On the whole, the domestic pulp supply side remained stable, the downstream demand has not been significantly repaired, and the downstream operating rate has rebounded after the relaxation of the double limit policy, but it is still at a low level in the same period of previous years. Raw material pulp prices continue to rise, making papermaking profits significantly compressed, recently paper companies have issued base paper price increase letters, but the finished paper market is limited, the specific implementation remains to be seen. In terms of inventory, at present, domestic port inventories are at a high level in the same period of previous years, and the rate of destocking is still relatively slow. Overall, in the short term, before the supply chain problems in Canada and Russia are solved, pulp prices still have upward momentum, but in the absence of a significant increase in downstream demand, a sharp rise may be difficult to sustain. After the enthusiasm for speculation subsides, pulp prices are expected to remain weak.

In terms of operation, the price of pulp under short-term international supply disturbances may still rebound, and it is recommended to rebound to the high near 6000 to short the main.

Risk points: 1. International supply regeneration variables; 2, macro environment turbulence; 3, import and export policies.

This article originates from the macro financial research of Shenyin Wanguo Futures