【Wdoodoo Weekly Cotton Report】Restrain for now, accumulate and lie low

Pulp market rallied then retreated last week. The spot average price of softwood pulp stood at around RMB 5,049/ton, up RMB 20/ton week-on-week. The spot average price of hardwood pulp was RMB 4,565/ton, flat week-on-week. Downstream buyers showed strong inquiry interest for low-price cargoes, accelerating market trading activity, while transactions for high-price pulp remained sluggish.

1.Middle East tensions fluctuate; market becomes desensitized to their impact

Trump continued his "Taco" stance last week, but the U.S. and Israel further expanded military deployment in the Middle East, leaving the risk of a phased escalation of conflict on the table. Currently, the Middle East sees simultaneous fighting and negotiations, evolving toward long-term confrontation with periodic intensity spikes. Due to lags in production order restoration and logistics recovery, the impact on related commodities will hardly dissipate completely.

However, the market has grown desensitized to Middle East risks. Commodity volatility has declined since April, especially non-energy commodities, which have reclaimed independent trends and returned to their own supply-demand logic.

2.Low-price softwood pulp stabilizes; monitor pulp mill destocking progress

Trading for low-price cargoes remained active. Reports indicate a large volume of cheap Russian softwood pulp was absorbed earlier, with Brazilian softwood pulp rebounding RMB 50/ton to around RMB 4,650/ton last week. Still, overall liquidity of softwood pulp at ports remains ample, and high-price cargoes faced slow sales, leading to another pullback after an early-week bounce. A substantial rally in softwood pulp likely requires more significant production cuts and destocking by pulp mills.

Hardwood pulp showed weakness, with overseas prices reversing their previous streak of hikes. Finished paper faces mounting inventory pressure, and paper mills mainly purchase hardwood pulp out of rigid demand. As the paper-making off-season approaches, demand support for hardwood pulp weakens; watch the RMB 4,500/ton support level for eucalyptus pulp.

The softwood-hardwood price spread has narrowed to below 500 yuan/ton, a five-year low. Brazilian softwood pulp prices, hit by earlier distress selling, have started to stabilize. With hardwood pulp at relatively low absolute prices and limited inventory pressure, the off-season impact is expected to be mild. The narrow softwood-hardwood spread may underpin a gradual stabilization in softwood pulp.

3.Demand weakens seasonally

The paper-making off-season has arrived, with finished paper prices and operating rates across grades generally declining. End-user demand remains sluggish, pressuring paper mills’ sales, and base paper prices are mostly lower. To ease operational strains and control costs, downstream paper mills purchase raw pulp only out of rigid demand on dips. Looking at finished paper destocking, meaningful demand-side support is unlikely until pre-restocking ahead of the Q3 peak season.

4.Port inventory pressure remains elevated

As of Friday, national mainstream port pulp inventory stood at 2.35 million tons, up 80,000 tons week-on-week, hitting a seasonal historical high. Seasonal destocking during the peak season was limited, while inventory rebuilt in the off-season. Softwood pulp inventory, in particular, needs further absorption.

Overall, the off-season arrival weakens demand support, and elevated port inventory continues to cap prices. That said, two failed downside breakouts on heavy volume recently make short positions less attractive. Low-price pulp transactions have improved, but near-term bullish catalysts are limited, with strong hedging selling pressure expected near 5,300 yuan/ton. Patience is needed to await pulp mill and port destocking. The pulp index is expected to trade in a RMB 5,000–5,300/ton range near term; wait for supply-demand expectation shifts or conduct light range-bound trading.