• H&M provides sales update (read-through for the likes of Lenzing, Birla and Sappi): Sales development was largely driven by COVID-19. Q2 sales (1 March – 31 May) declined by 50% y/y, while online sales increased by 36%. Total sales for 1-13 June declined by 30% y/y. In most markets, stores were temporarily closed and in the middle of April (c.80%). From the end of April onwards, they started gradually reopening stores in various markets. Currently, c.18% (900) of stores (5,058) are still temporarily closed. Online sales are open in 48 of their 51 online markets. H&M reports on 26 June.
  • CWF prices tracking demand (-4.6% YTD): Producers, including Sappi, were originally targeting price increases of 5-8% in April. Due to COVID, downtime has been taken across various producers; however, with CWF drops of >40-50% expected, it appears that further permanent capacity reductions are required.
  • Tug of war between pulp suppliers and buyers: Softwood pulp has lead gains YTD, while HW remains roughly flat. Pulp producers were pushing for price increases in May due to robust demand and balanced inventories. However, it appears that this was neutralized by concerns over P&W sector. It will be key to see how tissue demand evolves (March and April were stronger than pre-COVID, but now moderating) vs. P&W, where producers expect May to have been the worst from a demand perspective.
  • “At home” tissue demand and disruptions to recovered paper (RCP) could drive pulp demand of >1.5mt: Tissue accounts for 40% of global pulp demand, followed by graphic paper (35%) and cartonboard (25%). Surge in “at-home” tissue demand (75% of global tissue demand) has more than offset the decline in “away-from” home (25%). This saw most tissue producers print >20% sales growth in Q1. Furthermore, pulp demand has been boosted by reduced availability of recovered fibre and rising recovered paper prices impacting tissue production. Tissue production is generally weighted towards virgin pulp usage (>60%). Loss of RCP likely to provide pulp demand kicker as historically c.40% of growth would be supplied by RCP. Incremental tissue demand more than likely to all come from virgin pulp.  
  • OCC prices up 114% ytd; however, likely to see some cooling off
    (-1.6% w/w) as collection rates rebound:
    PfR markets are likely to reverse now, but with the pace dependent on the easing of lockdown measures. Structurally, OCC prices should decline due to the underpin from their full ban exports to China. We note that in May, China’s intent to stop imports was formalised. The regulation comes into effect from 1 September. This means that China will gradually realize zero imports of solid waste, however with the firm date to reach zero not yet set. In mid-May, the 7th round of PfR import permits was only 55.8kt (allocated to 8 mills). This takes the total quotas issued for 2020 YTD to 4.57mt – this is down by 45% y/y. We expect this to be supportive of OCC prices reverting back to sub EUR 80/t.  

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