What is the prospect of the peak papermaking season in October

Entering October, the peak season for the paper industry officially begins, and the market expects top paper companies to perform well under the stimulation of consumption nodes such as Double Eleven and Spring Festival.

Caixin reporters have learned from multiple sources that several paper companies hold cautiously optimistic expectations for the Q4 market. The management of Yueyang Linzhi (600963. SH) replied to reporters at the performance meeting that with the arrival of the peak demand season, the price of cultural paper is expected to rise, and there is currently no sign of a reduction in the scale of publishing bidding. A top paper packaging company insider said that under the stimulation of the Double Eleven promotion, it is expected that the demand for cardboard boxes will increase year-on-year. During the same period, the management of Wuzhou Special Paper (605007. SH) also expressed optimism, expecting a rebound in profits in the fourth quarter compared to the third quarter.

It is reported that in the first three quarters of this year, the overall market situation of the paper industry was relatively flat, and the industry's profits continued to be under pressure. However, thanks to the relatively stable prices of raw material pulp, the cost control advantages of leading paper companies gradually emerged, and profits were significantly restored. Sun Paper (002078. SZ), widely recognized as the "king of cost control" in the industry, saw a year-on-year increase of 40.49% in net profit attributable to shareholders in the first half of the year. Its gross profit for cultural paper, box board paper, and household paper all increased year-on-year, significantly outperforming the industry average gross profit. There are many factors that cause differences in gross profit. The so-called average gross profit of the industry is generally calculated based on the prices of pulp and paper varieties in the spot market, representing the real situation of most small and medium-sized paper mills that cannot sign long-term agreements with overseas pulp mills, do not have pulp production capacity, and have limited stocking capacity. They can only purchase pulp spot from domestic traders, process it, and then sell it. The demand in the first three quarters of this year was flat, and paper prices had to follow the rise and fall of raw materials. The profit margins of small and medium-sized paper enterprises have been unable to be opened up.

But for top paper companies, thanks to long-term contract orders, pulp production capacity, and inventory management advantages, their costs are often lower and they have the opportunity to obtain higher profits.

A spokesperson from a listed paper company told Caixin that the inventory management of top paper companies varies, and "each company has its own management method, so the profit difference will be so large, which is the core secret of paper companies." Among the main paper companies, Sun Paper and Huawang Technology (605377. SH) have better cost control performance. The former is among the largest in the industry and has laid out the forest pulp paper integration model earlier, while the latter directly engages in pulp trade and has better ability to cope with pulp price fluctuations than most comparable companies.

Standing at the starting point of Q4, the paper industry still faces significant challenges. According to data from Zhuochuang Information, in the just passed third quarter, the prices of cultural paper, white cardboard, and packaging paper all showed a downward trend. Coupled with the expectation of new production capacity release, it is expected that there will be significant upward pressure on paper prices in Q4. In this context, top paper companies still need to compete with cost control to improve profits.