A research report from Guotai Haitong Securities Co., Ltd. states that dissolving pulp is a core raw material for viscose staple fiber. Due to the continued strength in cotton and polyester staple fiber prices, demand for viscose staple fiber is expected to grow as a substitute, which will in turn drive up dissolving pulp prices. Companies are likely to benefit from the rising price of dissolving pulp. The report recommends Sun Paper (002078.SZ), a leading domestic producer in the dissolving pulp industry. As dissolving pulp prices continue to climb and wood chip prices stabilize, the company's performance is expected to improve further.
Key viewpoints from Guotai Haitong Securities Co., Ltd. are as follows: Supply constraints are clearly indicated, and cotton prices continue to strengthen. Since bottoming out in April 2025, cotton prices have accumulated a gain of 20.1%. The drivers for this round of cotton price increases are clear. On the supply side, the ICAC forecasts a 4% year-on-year decrease in global cotton production for the 2026/2027 season. This supply contraction is primarily due to domestic policies limiting cotton planting acreage in Xinjiang, coupled with drought conditions in U.S. cotton growing regions. On the demand side, the peak season for the textile industry provides effective short-term support for cotton demand. Medium to long-term supply and demand dynamics are expected to persist, with a targeted 10% reduction in Xinjiang cotton planting acreage likely to support cotton prices.
As the best renewable fiber substitute for cotton, the price spread between cotton and viscose staple fiber has now risen to 3,329 yuan per ton, reaching a historically high level. This wide price gap is expected to drive textile manufacturers to substitute cotton with viscose, thereby boosting demand for dissolving pulp.
Petrochemical raw material costs remain high, leading to significant increases in polyester staple fiber prices. Since hitting a low in December 2025, polyester staple fiber prices have accumulated a gain of 28.4%. This round of price increases is mainly attributed to geopolitical conflicts pushing up crude oil prices, resulting in high petrochemical feedstock costs that are being passed through to polyester staple fiber prices. When polyester prices rise significantly, some yarn mills and downstream players, responding to the high costs, shift towards using viscose staple fiber. Consequently, the substitution effect of viscose staple fiber for polyester is pronounced. The current price spread between viscose staple fiber and polyester staple fiber has narrowed to 5,390 yuan per ton, which is expected to encourage yarn mills to switch to viscose staple fiber, further driving demand for dissolving pulp.
A recovery in textile demand, combined with substitution effects, is pulling up demand for viscose staple fiber, leading to a rebound in dissolving pulp prices from their lows. In 2025, an imbalance between supply and demand, caused by increased domestic production and imports, led to a stepwise decline in dissolving pulp prices. In 2026, with a recovery in end-demand—evidenced by a 9.3% year-on-year increase in retail sales of textiles and apparel from January to March—and coupled with the substitution of viscose staple fiber for cotton and polyester staple fiber, demand for dissolving pulp, a core raw material for viscose, is expected to stabilize and recover. The current price of dissolving pulp is 6,550 yuan per ton, which is at the 16th percentile of its price range over the past five years. While the price has increased by 6.9% from its low at the beginning of 2026, this gain is smaller than the increases seen in cotton and polyester staple fiber prices. Furthermore, the response of dissolving pulp prices to rising cotton prices typically lags by 3 to 5 months, suggesting that there is still room for dissolving pulp prices to rise.
On the cost side, rainy weather in southern China has hampered the process of wood chip supply, and some pulp mills have shown strong restocking intentions after the holiday, leading to a temporary increase in wood chip prices. Looking ahead, as weather-related disruptions in the south diminish, wood chip prices are expected to stabilize.
Sun Paper is a leading enterprise in China's dissolving pulp industry, with a total annual production capacity of 800,000 tons. Its three major production bases in Shandong, Guangxi, and Laos have annual dissolving pulp capacities of 300,000, 200,000, and 300,000 tons, respectively. Sun Paper maintains good cost control; despite the dual pressures of falling dissolving pulp prices and rising wood chip costs in 2025, it still achieved a gross margin of 18%, although this represented a decrease of 6.4 percentage points year-on-year. As dissolving pulp prices continue to rise and wood chip prices stabilize, Sun Paper's performance from its dissolving pulp business is expected to improve further.
Risk warnings include sustained increases in raw material prices and a deterioration in the industry's competitive landscape.
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