Is the cyclical boom pushing weak assets to turn around? Industry insiders say positive signals are beginning to emerge

Driven by the current cycle of enthusiasm, strong sectors such as non-ferrous metals and phosphate chemicals have surged significantly. As a traditionally weaker sector, the paper industry has also begun to attract market attention, with major stocks like Nine Dragons Paper (02689.HK), Sunshine Paper (002078.SZ), Xianhe Co., Ltd. (603733.SH), and Bohui Paper (600966.SH) continuously closing higher on the monthly chart.

The upward expectation for the paper industry is heating up, but what is the actual fundamental situation?

Financial Associated Press reporters have learned through multiple interviews that there are indeed some signs of recovery in the paper industry. These are reflected in frequent price increase notices issued by paper companies and increased attention from institutions. The demand for profit recovery among paper companies is also very strong. However, due to persistent demand-side pressure, the industry has not yet shaken off its inward competition. Several executives from listed paper companies frankly stated that it is currently difficult to determine whether the industry will turn bullish. Demand remains sluggish, and any improvement is more likely driven by other bulk commodities.

In January and February this year, domestic white cardboard and household paper manufacturers successively began large-scale price hikes. Specifically, white cardboard prices were uniformly increased by 200 yuan/ton, and household paper by 100 yuan/ton, with new prices effective from March 1. This round of price increases has not yet been fully implemented, and the actual effect remains to be further observed. In recent years, during industry lows, it was common for price hikes of 100 yuan/ton to only be realized at 50 yuan/ton. Whether this round of price increases can be fully realized will be an important reference for assessing industry prosperity in the first half of the year.

Although paper companies claim that the price hikes are due to rising raw material costs, the reality is that recent domestic hardwood pulp spot prices have not increased but slightly declined. Industry insiders believe that these price hikes are more about restoring profit margins and leaving room for future pulp price increases.

It is reported that China’s paper industry relies heavily on imported pulp. From January to March this year, overseas pulp suppliers continued to raise hardwood pulp prices. If shipping cycles and price transmission are normal, these increases are expected to be transmitted to the domestic spot market within two months. Therefore, starting from March, domestic hardwood pulp prices are expected to rise, supporting subsequent price increases by paper companies. Additionally, since raw materials like pulp and equipment are mainly settled in US dollars, some believe that paper companies may benefit from the current RMB appreciation.

As a cyclical industry, the profit explosion of domestic paper companies generally comes from significant increases in raw material pulp prices, which lead to appreciation of inventory value. With inventories priced far below market value, paper companies gain substantial cost advantages and can achieve substantial short-term profits.

The last paper bull market began in 2020, when unexpected supply disruptions overseas caused pulp suppliers to continuously raise prices, initiating a bull run that lasted for two years. During this period, domestic paper companies benefited from inventory appreciation and profit surges. However, both stock prices and profits peaked ahead of 2021, as depleted low-cost inventories and rising pulp prices began to erode profits. Since then, the industry has remained in a prolonged downturn.

This downturn is expected to last until 2025, with industry profitability showing no signs of improvement but rather further pressure. The paper industry urgently needs to turn around this year. An executive from a listed paper company said that the industry is experiencing severe inward competition in 2025, and companies are eager to restore profits. Considering that the industry has been in a downturn for too long, they believe the probability of further decline is relatively low. However, at present, competitive pressure has not eased. Another specialty paper manufacturer admitted, “The inward competition is still fierce, and prices are heavily affected.”

According to data from ZhuoChuang Information, from February 20 to 26, prices of major paper types—white cardboard, household paper, and cultural paper—remained basically unchanged compared to the previous week. Coated paper saw a slight decline. Downstream demand is still in the early stages of resumption, and further recovery is needed.