- 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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