The paper industry chain currently exhibits characteristics of "high concentration at the resource end and fragmented competition at the processing end," with pulp, as a resource with scarce natural endowment, holding strong pricing power.
Chinese paper enterprises have now entered a mature stage of stock game competition, where growth driven solely by capital expenditure is unsustainable, and the strategic core has shifted towards utilizing their own fiber resources to hedge against pulp price fluctuations, which carry strong financial attributes.
Continuing to favor the performance of leading integrated "forest-pulp-paper" companies by 2026, under resource constraints and cost volatility, integration is the key to achieving cost hedging and resource revaluation.
The focus is recommended on "value integrators" that possess high self-sufficiency rates in fiber and have resource barriers.
Following the 2021 paper industry bull market, profit distribution tilted towards the pulp end, and the elimination of paper production capacity shows a "long-tail effect."
The paper industry chain currently exhibits characteristics of "high concentration at the resource end and fragmented competition at the processing end," with pulp, as a resource with scarce natural endowment, holding strong pricing power, while midstream papermaking is squeezed by high pulp prices and weak demand, leading to continuously narrowing profit margins.
Due to high per-ton investment and significant depreciation pressure, the pace of capacity elimination in the industry during periods of oversupply is slow, making it difficult to translate economies of scale into price dividends, with profit stability largely dependent on effective cost pass-through.
The strategic paradigm has shifted from capacity expansion to industrial chain integration.
Chinese paper enterprises have now entered a mature stage of stock game competition, where growth driven solely by capital expenditure is unsustainable, and the strategic core has shifted towards utilizing their own fiber resources to hedge against pulp price fluctuations, which carry strong financial attributes.
This integrated approach essentially transforms unstable processing profits into stable resource-based premiums, enabling leading companies to transition gradually from "global resource movers" to "value integrators," which becomes key to maintaining stable ROE at the cycle bottom.
Sun Paper is a representative example that has taken the lead in establishing a "forest-pulp-paper" integration model under domestic resource constraints.
A short-term supply-demand gap for wood chips is expected to emerge by 2026, favoring a recovery in the price centers for wood chips and pulp.
In the short term, despite large-scale domestic investments in self-made pulp production in recent years, the construction cycle for supporting high-quality wood chip resources lags far behind equipment commissioning, and a phased supply gap in the domestic wood chip market is anticipated by 2026, with raw material shortages pushing up the cost center.
As marginal improvements occur on the demand side, the price center for pulp is expected to recover by 2026, and leading companies with self-sufficiency capabilities across the entire industrial chain will continue to demonstrate the premium opportunity from "processing and manufacturing" to "resource revaluation."
Regarding specific stocks, Sun Paper (002078.SZ), Nine Dragons Paper (02689), and Suzano (SUZ.US) are favored.
Risk factors include demand falling short of expectations; new production capacity exceeding expectations; and pulp prices experiencing unexpected volatility.
