The recovery of the paper industry in 2025 is expected to achieve supply-demand balance or welcome a turning point

China International Capital Corporation (CICC) released a research report stating that looking ahead to 2025, the demand for papermaking is expected to recover moderate growth under the strong boost of policies on consumption. The supply side is at the end of the production capacity cycle, and the supply-demand balance of box board paper and cultural paper is relatively easier to repair. Pulp may fluctuate mainly after stabilizing at the bottom.

The main views of CICC are as follows:

Demand: Recovery is expected under policy stimulus. As a highly sensitive countercyclical product to consumer demand, papermaking has a high certainty of benefiting from demand in 2025, especially for packaging paper and specialty paper, which are expected to recover to mid single digit year-on-year growth. The demand for cultural paper is expected to steadily increase with the support of orders such as textbooks and teaching aids.

Supply: The production capacity cycle is coming to an end, and the pattern is changing. The pressure of adding new production capacity in the industry in 2025 exists but has slowed down. The bank determines that the new production capacity of cardboard and cultural paper accounts for less than 10% of the existing demand, while the expansion pressure of white card and specialty paper is relatively high. Looking ahead to the whole year, the bank believes that the overall supply and demand of bulk paper are relatively balanced, and the price of white cards may still be in the bottom grinding stage; The expansion of production capacity for specialty paper leading pulp and paper is relatively significant, and small enterprises may accelerate their clearance, entering a critical period of pattern reshuffle and testing the price stability ability of leading enterprises.

Price and Cost: The price difference between pulp and paper scissors has widened again in the short term, and it is estimated that the broad-leaved pulp price will fluctuate in the range of $550-650/ton in 2025. The bank believes that bulk paper prices are expected to remain firm under the catalysis of the suspension of production during the morning peak season and favorable policies. If pulp prices stabilize at the bottom, it means that the inventory costs of paper mills will gradually decrease in the next two quarters, and the overall profitability of bulk paper enterprises is expected to experience a moderate recovery; However, since 4Q24, the price of specialty paper has slightly decreased, and there has been little significant improvement in profitability compared to the previous period. Looking ahead to 2025, the bank believes that there will be limited supply of commodity pulp, but there are still many self use pulp projects contributing to new production capacity in China and Southeast Asia, which may reduce the purchase of commodity pulp. The probability of pulp fluctuating between $550-650/ton is high, and the impact of the pulp cycle on paper prices in 2025 may weaken.

In the medium to long term, the scarcity of enterprises with high-quality forest land and pulp resources will increase. The bank estimates that from 2023 to present, the global newly added commodity pulp production capacity will exceed 8 million tons (accounting for over 10% of the commodity pulp production capacity in 2023). Looking ahead, the next large-scale commodity pulp project may be put into operation by 2027, during which there are currently no large-scale projects with high certainty; Considering the sustained growth of the global economy, upstream wood chip and pulp resources may become scarce, and we are optimistic about enterprises with high-quality forest land and pulp resources.

risk

Demand falls short of expectations; New supply exceeds expectations; Core raw material prices have fluctuated beyond expectations.