【Wdoodoo Weekly Pulp Report】The boundless forest sheds its leaves shower by shower; where lies the bottom for pulp prices

The pulp and paper market is in a downturn recently. Needle pulp keeps falling and is likely to break below the five-year low. Paper prices drop sharply. Downstream buyers tried to buy the bottom several times but in vain. The price spread between needle pulp and broadleaf pulp hit the lowest level since 2020. As needle pulp cuts prices to destock, broadleaf pulp is under pressure. Most commodities have entered a downward cycle since 2022. Non-ferrous metals and energy chemicals have bottomed out and rebounded, but pulp and paper keep falling. Where is the bottom?

1.The Middle East situation is unlikely to be substantially resolved in the short term.

The US and Iran reached a tentative truce last week, but peace talks failed over the weekend. Trump said he would blockade the Strait of Hormuz. What cannot be gained on the battlefield is harder to achieve at the negotiating table. The US is accelerating military deployment. The US-Israel-Iran conflict faces the risk of exceeding expected escalation.

The Middle East is in a state of fighting while negotiating. The situation is evolving into long-term confrontation with periodic escalation, which continues to affect crude oil production and transportation in the Persian Gulf. As war risk insurance is repriced and shipping order recovery lags, commodity costs may rise for a longer period.

2.Overseas quotations weaken; pay attention to pulp mill destocking progress.

Affected by demand substitution from broadleaf pulp, needle pulp destocking is difficult. Global needle pulp producers' inventory days remain high at around 50 days, and price cuts for destocking occurred again in March.

Port needle pulp liquidity is sufficient, and traders are actively shipping, but downstream buyers mostly wait and see. Demand from futures-spot traders is also declining. Since Q3 last year, actual transaction prices of needle pulp were mostly at $680/ton or below. The current disk price equivalent to needle pulp cost is around $650/ton, below North America's production cost. The market is trading the next round of quotation cuts. Recently, pay attention to US production news. The rise of needle pulp may require more significant production cuts and destocking by pulp mills.

Broadleaf pulp shows weakness. Overseas quotations for April remain flat at $620/ton, changing the previous continuous rising trend. Finished paper shipment pressure is high, and paper mills slow down inquiries. As the paper-making off-season comes, demand support for broadleaf pulp may weaken. Pay attention to the 4500 support level for eucalyptus pulp. However, broadleaf pulp inventory pressure is limited, so the impact is expected to be limited.

The needle-broadleaf spread narrows to below 500, a five-year low. Imported needle pulp prices are flat with broadleaf pulp, and traders' confidence in supporting prices weakens. On the contrary, if broadleaf pulp prices can stabilize in the off-season, the low needle-broadleaf spread may gradually stop needle pulp from falling.

3.Demand weakens seasonally; wait patiently for paper mills to restock.

Paper mills operate relatively stably, and weekly paper output continues to rise. White card and tissue paper have large demand for pulp, supporting overall pulp production and sales. However, end-market orders are average with limited follow-up. Paper prices are weak, with cultural paper and white card at the lowest level since 2020. Paper mills worry about pressure after seasonal demand weakens after April, with cautious outlook. They mainly consume early raw material inventories and buy pulp on dips for rigid demand.

Observe finished paper destocking. Demand support may need to wait until restocking before the Q3 peak season.

4.Port inventory pressure is relatively high.

As of Friday, national mainstream port inventory was 2.306 million tons, down 46,000 tons from the previous period. About 100,000 tons were destocked in two weeks. But it is still at a historical high, with limited seasonal destocking in peak season. Especially needle pulp inventory needs more digestion.