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Forecast 2007: the future trend of the paper market

1 the total consumption and production will still maintain a growth rate of about 10%

the compound annual growth rate of China's paper and paperboard consumption from 2001 to 2005 is 12.65%, lower than the GDP growth rate of the same period. The consumption of paper and cultural paper has a weak correlation with GDP. The growth rate in 2005 was much lower than that of GDP in the same period. It is expected to maintain this trend in the next few years. The consumption of carton board, white cardboard and household paper has a strong correlation with GDP. It is expected to maintain a growth rate of more than 10% in the next few years with the strong growth of the secondary industry and consumer goods. In general, based on the expectation of sustained and rapid economic growth in China, it is expected that the consumption of paper and paperboard in China will continue to grow at a high speed in the next few years. It is estimated that the consumption from 2006 to 2008 will be 64.98 million tons, 71.37 million tons and 78.68 million tons respectively, with annual growth rates of 9.57%, 9.83% and 10.25% respectively

in terms of production, the compound growth rate from 2001 to 2005 reached 15.02%, higher than the consumption growth rate of 12.65%. Based on the statistics of newly released production capacity from 2006 to 2008, it is predicted that the annual growth rates of China's paper and paperboard production from 2006 to 2008 are 17.67%, 10.87% and 11.15% respectively, which are higher than the consumption growth rate in the same period (see Table 1). The higher output growth rate in 2006 compared with 2007 and 2008 is mainly due to the centralized production capacity of China's paper industry in 2004 and 2005, which was released in 2006, and the relatively small new production capacity in 2006 and 2007

2 the introduction of industrial policies has triggered a new round of large-scale integration between scale and environmental protection. The outline of the Eleventh Five Year Plan for national economic and social development specifically puts forward the requirements of "adjusting the raw material structure of the paper industry, reducing water resource consumption and pollutant emissions, eliminating backward straw pulp production lines, and implementing forest paper integration projects in areas where conditions permit". The paper industry development policy (Draft) and the outline of the 11th Five Year Plan for the development of the paper industry, which will be officially issued in 2007, will fully implement the above requirements. The environmental protection administrative monitoring of China's paper industry will be further strengthened, and a large number of small and medium-sized paper mills that fail to meet the environmental protection standards will be eliminated. Scale and environmental protection will become important indicators for the development of the paper industry

according to the estimated output in 2006, there are only 25 large paper mills with an annual output of more than 300000 tons in China's paper industry, and the largest Chenming is 2.34 million tons, which is only 13% and 14% of the annual output (18million tons and 16.4 million tons) of international paper giants international paper and Storaenso. The total output of 25 large paper mills was 18.91 million tons, accounting for 28.7% of the estimated total output of 65.89 million tons in 2006. There is a lot of room for integration

with the official promulgation of the development policy and the planning outline in 2007, the paper industry will be integrated on a large scale again, and small paper mills (mainly producing paper and cultural paper) with less than 10000 tons will be the first to face closure or conversion. The industrial policy will encourage the further expansion of large enterprises. After the completion of integration, bulk paper (paper, cultural paper, packaging paper) will become a monopoly industry of price alliance. At present, the A-share listed companies that are most likely to become monopolistic leaders are Huatai Paper in the paper industry and sun paper in the packaging paper industry

in fact, scale and environmental protection complement each other and rely on each other. The scale of small and medium-sized paper mills is too small to bear the further decline in gross profit margin caused by environmental protection costs. It is better to switch production than to install environmental protection equipment. If they do not install environmental protection equipment, they will be forcibly closed by the government. Most large paper mills have perfect environmental protection equipment. If the corresponding environmental protection cost cannot become the common cost of the whole industry due to the local government's unnecessary expenditure on small and medium-sized paper: Factory protectionism, its enthusiasm for environmental protection will be greatly frustrated. Only when the cost of environmental protection becomes a common cost and small and medium-sized paper mills continue to be eliminated, can large paper mills, on the one hand, occupy the withdrawn market and continue to expand, on the other hand, further dilute the cost of environmental protection and increase investment in environmental protection, so as to fundamentally change the situation of large polluters in China's paper industry from a low noise

"forest paper integration" is still the central axis of the development of China's paper industry, in line with the industrial policy of "scale and environmental protection". It is difficult to bear the huge forestry investment without scale, and the optimization of pulp structure brought by the integration of forestry and paper has greatly reduced environmental pollution

3 the benefits of forest paper integration are difficult to see in the short term, and the cost of raw materials is still the key constraint.

due to the continuous reduction of forest area, the global wood supply shows a decreasing trend in the long run, while the total demand for wood is growing. Therefore, it can be predicted that in the long run, the price of global timber will continue to rise significantly before the forest coverage rate decreases to increase

although forest paper integration is the fundamental way for China's paper industry to solve the bottleneck of raw wood pulp supply and improve the grade and competitiveness of paper products, due to population pressure, limited forest resources, high project investment capital, long log supply cycle and many other adverse factors, China's forest paper integration project will be difficult to reach the level of contribution of corresponding industries in Canada, Finland and other countries in the next few years, It is difficult to complete the task of provoking the heavy burden of the development of China's paper industry in the short term. Therefore, due to the large anisotropy, it is difficult to increase the proportion of raw wood pulp in China's paper industry only by afforestation in the short term

at present, China's pulp consumption has accounted for 1/3 of the global total. The compound annual growth rate of pulp consumption from 2001 to 2005 is as high as 13.26%. The cost of raw materials will become one of the key constraints for the development of China's paper enterprises in the next one to two years. Due to the high-grade demand for paper products, whether we can obtain a large number of high-quality wood pulp with high quality and low price determines the width of the enterprise's product line (high-grade paper products) and the gross profit margin level and market share of the products to a considerable extent

on the one hand, China's raw wood pulp import dependence is very high, on the other hand, the world's raw wood pulp available for import is relatively limited, it is difficult to have a significant growth. International pulp prices have rebounded since October 2005, rising from $640/ton since 2006 to $770/ton, an increase of 20% (Figure 1). The rise of pulp price has become the biggest factor restricting the cost control of enterprises. Since the fourth quarter of 2005, the gross profit margin of key paper companies has continued to decline

from the perspective of international wood pulp supply in recent years, the main supply areas have gradually shifted from North America and Northern Europe to Russia (coniferous pulp) and Latin America (broad-leaved pulp). With the rise of emerging wood pulp supply areas, although the output of old-fashioned wood pulp suppliers (mainly Canada) has a decreasing trend, the continuous filling of the gap makes it difficult for wood pulp prices to maintain such a high-speed growth in recent years in 2007, We judged that there should be a slight correction in stability, which began to fall in the second half of 2007. The gross profit rate of the industry will therefore rebound, but the range is limited

4 main paper prices and supply-demand trend

4.1 paper

the price of domestic paper in 2006 decreased compared with that in 2005, as shown in Figure 2

in terms of supply and demand, 2006 is likely to be the first year in many years when paper production is greater than consumption, and the demand gap is expected to be 260000 tons (Figure 3). This is mainly due to the centralized release of new paper production capacity in 2004 and 2005 and in 2006. It is estimated that the gap will expand to 410000 tons in 2007. In 2008, due to the Olympic Games driving paper consumption and less new production capacity in 2007, the production growth rate will be reduced, the gap will be reduced, and the supply and demand will be basically balanced. Accordingly, we believe that it is difficult for paper prices to rebound significantly in 2007, and excess capacity will have to seek overseas markets. Here, RMB appreciation will become a negative factor. The gross profit rate of the industry will remain low, and small and medium-sized paper mills will be more difficult to survive in the face of the dual effects of the industry downturn and environmental pressure. For Huatai and other large paper mills, it is a good opportunity to expand market share

4.2 cultural paper

cultural paper mainly includes coated paper, light coated paper and uncoated cultural paper. Generally speaking, the price change is small and relatively stable (Figure 4, figure 5 and Figure 6)

from the perspective of supply and demand, cultural paper will also have a situation of supply exceeding demand for the first time in 2006 (360000 tons), and the demand gap is expected to expand, reaching 1.48 million tons in 2008 (Figure 7). As the new production capacity is dominated by coated paper, it is expected that under the supply pressure, the price of coated paper will decline, and the producers with small output will face severe challenges and may be squeezed out of the market. The supply and demand of light coated paper and ordinary uncoated cultural paper are basically balanced, and the price will be stable and slightly reduced

4.3 carton board and corrugated base paper figure 4 new coated paper price index from 2005 to 2006 source: China Merchants Securities Research and development center sorting Figure 5 new young coated paper price index from 2005 to 2006 source: China Merchants Securities Research and development center sorting source: China Merchants Securities Research and development center sorting

the price of carton board (Kraft faced paper) fluctuates greatly and has risen sharply recently; The price trend of corrugated base paper and the total sales of the top five enterprises accounted for only 10.2% of the total sales of domestic biomedical materials, which was relatively stable (Figure 8 and Figure 9)

cardboard and corrugated base paper, which are strongly related to GDP, especially the GDP of the secondary industry, have developed rapidly in China in recent years, but they still cannot meet the growing demand. The supply gap in 2005 was 2.2 million tons. Although there were many new production capacity launched from 2006 to 2008, they will still lag behind the consumption growth rate, and the demand gap will expand to 4.62 million tons in 2008 (Figure 10). Based on this, we believe that although the price of imported waste paper, its main raw material, continues to rise, due to strong demand, the gross profit margin of carton board and corrugated base paper will not decline, and may even rise slightly. On the one hand, the price will rise with the rising cost, and on the other hand, it will rise under the influence of market supply and demand

4.4 white paperboard

white paperboard is another kind of packaging paper, including white paperboard and white paperboard. The price trend of the former is relatively stable, and the latter has risen sharply recently (Figure 11 and Figure 12)

at present, the white paperboard produced in China is mainly coated white paperboard, accounting for 94%. Like cardboard, white cardboard also has a strong correlation with GDP growth. According to the capacity statistics, we predict that the growth rate of production and consumption of white paperboard will remain the same from 2006 to 2008, about 10%, so that the supply gap will stabilize at about 800000 tons (Figure 13)

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