【Wdoodoo Weekly Pulp Report】Ample liquidity weighs on prices,adopt a bullish stance on pulp at low levels.

Trading activity in pulp and paper was slow. Last week, pulp prices surged and then retreated. The average spot price of softwood pulp was around 5,251 yuan/ton, down 6 yuan/ton from the previous week. The average spot price of hardwood pulp stood at 4,548 yuan/ton, down 17 yuan/ton from the previous period. Paper mills have gradually resumed production, but actual demand orders have been slow to follow, resulting in strong wait-and-see sentiment in the market.

1.The situation in the Middle East is spiraling out of control, pushing up overall energy and chemical costs.

The Middle East situation is evolving toward prolonged confrontation and periodic escalation of tensions, which continues to impact crude oil production and transportation in the Persian Gulf. Due to the repricing of war risk insurance and the time lag in restoring shipping order, costs of energy and chemical products are expected to remain elevated for a longer period, driving up pulp production and transportation costs.

2.It is difficult to reduce softwood pulp inventories; more pulp mill production cuts are needed.

Affected by adjustments in paper-making formulas and structural weakening in demand, the supply surplus of softwood pulp is expected to be hard to reverse. In January, global softwood pulp producers’ inventory days rebounded to around 50 days, a historical high.

Since August, actual transaction prices of softwood pulp have been around 680 USD/ton, equivalent to an import cost of about 5,500 yuan/ton. Currently, port liquidity of softwood pulp is ample, with traders actively selling while downstream buyers are scarce. It is expected to be difficult to break through the risk-free hedging pressure near the import cost level. A sustainable rise in softwood pulp may require more significant production cuts and inventory destocking by pulp mills.

Hardwood pulp overseas prices continued to rise. In March, offshore prices of eucalyptus hardwood pulp such as Star were raised by 20 USD/ton to 620 USD/ton, equivalent to an import cost of around 4,900 yuan/ton, with an import loss of over 350 yuan/ton. Traders face high pressure to take deliveries, downstream paper mills remain cautious, and hardwood pulp spot prices continued to edge down slightly.

3.End-user demand saw a seasonal recovery, but implementation of finished paper price hikes was limited.

Operating rates of various paper grades gradually recovered after the holiday. Finished paper output in January-February remained at a high level for the same period in history. However, end-order follow-up was modest, and base paper prices lacked upward momentum. Paper mills held cautious expectations for the future and limited willingness to restock raw materials. As a result, they mainly consumed existing raw material inventories and purchased pulp on dips to meet rigid demand. The market has begun to worry about pressure after seasonal demand weakens in April.

4.Port inventory pressure remains high.

As of Friday, total inventories at major national ports stood at 2.47 million tons, down 40,000 tons from the previous period, but still at an absolute historical high, weighing on market sentiment.

Overall, the market is dominated by pulp and paper oversupply. Implementation of finished paper price increases was modest, profit improvements for paper enterprises were limited, and pulp purchasing remained cautious. Risk-free import hedging pressure is relatively concentrated for pulp main contracts above 5,500. Production cuts by Finnpulp are hard to reverse short-term market concerns over oversupply.

However, most softwood pulp prices in Northern Europe and North America have fallen below production costs, with frequent mill shutdowns and production cuts. Coupled with the Middle East conflict, pulp production and transportation costs have risen.

Pulp valuations are at low levels; short selling risks should be avoided at current levels. Pulp is expected to undergo a gradual bottom-building process, fluctuating in the range of 5,100–5,500, with a long-term bullish bias at low levels.