• H&M Q2 21A sales update points to a strong recovery and positive outlook for textile demand:  Q1 21A (1 March to 31 May 2021) net sales increased by 75% in local FX. At the start of Q2, c.1,300 stores were temporality closed vs. 140 at the end of Q2. Sales during 1-13 June are up 35% y/y (+2% vs. 2019), with 180 stores closed.   
  • Voith H1 21A EBIT up 4% y/y: There has been “significant growth” in orders received, the highest in nine years. Voith Paper remains on track for growth, despite a normalization of investment in the paper industry. Voith Paper orders were up 26% y/y. H2 outlook appears optimistic, citing an “economic recovery earlier than expected”.
  • Positive read-though for Sappi SA from Mpact’s trading update (recent Mpact report, Download report): For the five months ending 31 May, the Paper business revenue increased by 15% y/y, while EBIT was higher than pre-pandemic comparatives. Domestic containerboard demand remains strong supported by a recovery in industrial and quick service restaurant sectors. Growth in the agricultural sector was partly offset by a later start to the citrus season compared to last year. Despite this, the 2021 citrus crop is still expected to register as much as 8% growth.
  • Competitiveness of the Finish pulp & paper industry under pressure as Finland reduces compensation for emission trading for energy-intensive industries from 37.5% to 25.0%:  This compares unfavourably to the maximum 75% guideline, as applied in Germany. Additionally, the Finnish government has also increased tax on diesel fuel. We note Mondi has direct exposure to Finland through its Kuopio mill (285ktpa of semi-chemical kraftliner and 275ktpa of pulp), while Sappi has its Kirkniemi mill (750ktpa coated mechanical and 300ktpa of pulp).
  • The outlook for tissue demand-supply balance in China is unfavourable, with utilisation expected to be c.63%: Chinese tissue utilisation has dropped as capacity additions have exceeded demand. The Chinese tissue market in a strong growth phase; however, the market remains highly competitive. After a weak 2018 (demand: +4%), 2019 and 2020 printed growth in excess of 8%. Further growth is likely to be impacted by pulp prices as profitability of tissue produces has been under pressure with tissue prices not catching up to pulp (>80% of Chinese tissue production is based on wood pulp). Looking forward, RISI expects tissue demand to increase by 5% in CY 21E and to stabilize in this range but growth remaining high at c.600ktpa.
  • US kraft linerboard producers continue to favour domestic demand: April US kraft linerboard exports were down y/y, with YTD US exports down 26.6% to 1.176mt. China and Italy are the second and fourth largest export markets for US kraft linerboard and were down 47% and 39%, respectively.
  • May US coated free sheet (Sappi read-though) purchases down 16% y/y: Market conditions continue to improve. Encouragingly, imports declined by 14% y/y, while exports increased by 32%.
  • May US uncoated free sheet (Mondi read-though) shipments up 22% y/y:  Imports increased by 10% y/y (positive for European producers), and exports increased by 25% y/y.
  • May US Packaging papers and specialties printed a 5% increase for shipments (YTD +2% y/y): Operating rates improved y/y to 87.6%. This is positive read-through for Sappi (C1S, Bristols and release).

Mondi newsflow

  • Mondi collaborates with Italian machine producer ACMI to crate Advantage StretchWrap paper-based wrapping system for pallets: MNP’s first to market product is designed to wrap pallets for transport. It replaces the multi-layer plastic (low recycling rates), which is currently the industry standard for pallet wrapping. It can stretch and resist punctures, providing robust protection for goods during transit.

Sappi newsflow

  • Gratkorn adds more specialty products with the launch of its sustainable range of non-wet-strength wet-glue label papers with Parade Label Pro: It is a glossy, one side double-coated label paper, which features a smooth surface with a high degree of brightness, ensuring excellent printing and finishing results. It is used in applications such as labels for disposable bottles, food and non-food containers and wrappers.
  • Sappi North America to sell its hydroelectric assets to Dichotomy: This is consistent with their strategy to focus on core competencies. The deal is expected to close by the end of CY 21E.

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