Headlines | Market Demand Is Weak, Speculative Funds Are Leaving, Waste Paper, Raw Paper Prices Are Diving

Lead: Recently, both domestic base paper and waste paper ushered in a diving market. The downtrend is so fierce that it seems to be another re-enactment of the market in October 2017 and September 2018, and the market panic mentality has worsened.

Waste paper and raw paper both dive, the market panic mentality is aggravated

Recently, domestic scrap yellow paper prices have ushered in a wave of diving, and fell below 2,000 yuan / ton in one fell swoop, and dropped to around 1800 yuan / ton, ending the state of hesitancy before the market. The downtrend is so fierce that it seems to be another re-enactment of the market in October 2017 and September 2018, and the market panic mentality has worsened.

At the same time, on May 28th, all the bases of domestic packaging paper leading enterprises lowered the ex-factory price of corrugated and boxboard paper. Among them, Dongguan base led the decline of major bases, the price cuts ranged from 100-250 yuan/ton, the Quanzhou base lowered 100-150 yuan/ton, the Chongqing base and Taicang bases both fell 100 yuan/ton, and the Tianjin base lowered 50-100 yuan. /Ton. Once the news spread, many domestic paper mills followed suit, with a drop of 50-250 yuan / ton.

The paper mills were shut down for maintenance at the end of May and early June. What is the purpose?

Before this round of adjustment, the paper mills in South China were pessimistic about the trend of the paper market. Some small and medium-sized paper mills in Guangdong had adjusted 5-7 times before the leading paper enterprises lowered their prices, and the cumulative price cut was 200-300 yuan/ton. The large price adjustment of the leading paper enterprises has become the last straw for the confidence of the paper mills. On the day of price adjustment, some paper enterprises in South China issued notices of shutdown maintenance.

We can't help but ask, what are the factors that caused the paper mill to announce the shutdown maintenance plan?

First, the overall corrugated and cardboard paper market is currently weak. According to Zhuo Chuang statistics, as of May 29, the national average price of corrugated paper was 3,428 yuan / ton, down 1.64% from the previous week, down 28.91 year-on-year; the average price of national cardboard paper was 4088 yuan / ton, down 2.90% from last week. It fell by 23.20% year-on-year.

In the first quarter of 2019, the export volume of corrugated paper was about 10,500 tons, down 7.93% from the previous month and down 33.54% from the same period of last year. The export volume of cardboard paper was about 1.81 million tons, down 10.84% from the previous month and down 26.12% from the same period last year.

Second, the price of waste paper continues to decline, and the cost support is scarce. Recently, the national waste yellow paper has generally plunged into the factory price. The bases of leading paper enterprises have lowered the purchase price of used yellow paper for 130-150 yuan/ton, and the small and medium-sized paper mills have panicked down.

Third, since the fourth quarter of 2016, the domestic corrugated and cardboard paper market has started to rise in price. With the increase in domestic industry profits, a number of importers of corrugated and cardboard papers have been attracted to the market, which has led to a large number of new projects. In 2019, it plans to put into production more than 10 million tons of new capacity. Although it is currently only producing about 2 million tons, the market is under pressure for a market that is weak in demand.

Fourth, the import volume of corrugated and boxboard paper continued to increase significantly in the first quarter of 2019. A large amount of low-priced imported paper entered the Chinese market, which led to further intensification of domestic competition. In the first quarter of 2019, the import volume of corrugated paper was about 209,900 tons, down 7.87% from the previous month and up 78.77% from the same period of last year. The import volume of cardboard paper was 41,100 tons, down 19.75% from the previous month and up 19.32% from the same period of last year.

Fifth, the downstream demand continued to be weak, and the downstream cardboard and carton factories started to work at a low level. In addition, the demand for packaging paper caused by the reduction of export commodities caused by tariffs on some commodities in the United States decreased, and the demand for corrugated and cardboard paper market shrank significantly. Factory inventory pressure is highlighted.

Based on the above factors, some paper mills in South China have to break their wrists and take measures to stop production and reduce their prices. In view of the current market environment, paper enterprises will reduce production or increase the market wait-and-see atmosphere. Order increments are difficult to see. High risk.

Expectations of reduced demand may just begin

Zhuo Chuang analysis, from the trend of waste paper prices in the past three years, a notable feature is "rise in supply, fall in demand." The rise caused by the tightening of supply expectations will inevitably end with the reality that demand expectations are weakening. If the waste paper market before 2019, the supply side is the main factor affecting waste paper. Then after 2019, the main factor affecting the price fluctuation of waste paper will be the fluctuation of the demand side. The main logic is that the marginal growth rate of demand falls faster than the margin of supply margin.

Our judgment is based mainly on concerns about China's macroeconomic downturn and concerns about the escalation of Sino-US trade disputes. Judging from the economic data released in April, the downward pressure on the Chinese economy has increased significantly. Driven by the economic troika, consumption and net exports are accelerating. In terms of investment, only real estate is still struggling, but its sustainability is not strong.

The escalation of Sino-US trade disputes has become one of the biggest potential uncertainties in suppressing the Chinese economy. It can be said that this waste paper price diving is the seed buried after the escalation of Sino-US trade disputes. This seed quickly took root after the paper enterprise orders were rapidly reduced, the market risk rose sharply, and the price of waste paper also dipped.

From the trend of Sino-US trade disputes that began last year, the future Sino-US trade dispute will not end soon, and there is still the possibility of further upgrading. The complexity and long-term nature of Sino-US trade disputes overlap with the cyclical decline of China's economy. It is foreseeable that the downward pressure on China's economy will increase in the future, and the future of China's economy will shift from supply-side tightening to demand-side weakening.

Departure of speculative funds

We know that the price is behind the funds. From 2016 to 2018, the price of raw paper and waste paper has risen. A key factor is the entry of a large amount of money. The waste paper has also been given a strong financial attribute. When the waste paper market tells a good story about supply and demand, a lot of money is also eyeing this once-unknown area, becoming a paradise for investment and speculators. From the waste paper to the finished paper, the entire industrial chain is filled with speculative atmosphere, which also magnifies the rise and fall of waste paper prices.

At the same time, we also see the irrational development of this industry. Under the inducement of speculative profit, a large number of packing stations were launched, and the production capacity of finished paper increased rapidly. However, with the reversal of the market supply and demand pattern, speculative income has been greatly reduced, and the risk of loss is also expanding. As Buffett said, only when the tide recedes will you know who has been swimming naked. After several large shocks in the waste paper market, the departure of speculative funds is also accelerating.

Overall, the diving of the waste paper price has a certain commonality with the previous two times, but when history is repeating itself, the factors affecting the market are also evolving. The impact of the tightening of waste paper supply on the price support of waste paper has been weakening, and the impact of weakening demand side will be strengthened in the future. Speculative funds are accelerating to leave, and the future waste paper prices will return to the fundamentals.

We believe that the sharp drop in the price of waste paper on the one hand is a reaction to the weakening of demand expectations, and its more significant significance is the correction of the price distortion of waste paper. The effective price mechanism is a prerequisite for market clearing. With the revision of waste paper prices, the waste paper market will also be effectively cleared, and supply and demand will reach a new equilibrium, which is also conducive to the healthy development of the domestic waste paper industry in the future.

The price of waste paper directly affects the price of raw paper. When the domestic waste paper industry tends to be in good condition, it will also be used as a stabilizer for the raw paper market.

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