- Mixed moves for pulp: Softwood pulp prices are holding ground, while hardwood is coming under further pressure. Hardwood DP is bucking the trend, however. NOREXECO pulp futures for CY 23E imply an 8-11% decline in Europe, and a decline of 6-11% in China, with more pressure expected in both regions in 2024.
- VSF prices stable: The VSF op. rate continues to climb, now at 81% (from 65% in early February) as one Shandong-based VSF line restarted production. VSF inventory days also decreased further to 22 (from 31.5 in early February). The theoretical VSF margin for Chinese producers weakened slightly to $44/t. The Lyocell market continues to improve, with the operating rate jumping to 70% from 55% in early February.
- DP prices continue to gain traction: Import hardwood DP is now $915/t, with some further gains for domestic producers in China. Arauco quoted hardwood DP up by $20/t to $920/t this week. The DP/pulp spread is currently $169/t (this level generally supports preference for paper pulp production over DP production). Despite this, Sun Paper maintained DP production. The domestic DP price increased by 1% w/w to ¥7,300/t ($1,055/t, a $145/t premium to imports).
- Graphic Paper prices stable: After factoring in a 30% discount to list pulp prices, the CWF/HW spread was up 4% w/w to €363/t – the highest in 2023 to date. The UWF/HW spread was also up 4% w/w to €468/t, reaching a high in 2023. CWF are now up 14% and 10% YTD vs. the 2022 average.
- Containerboard prices weaken further: Kraftliner was down 1% w/w and is now down 10% vs. the 2022 average. Testliner dropped 2% w/w and is now down 14% YTD vs. the 2022 average. The kraftliner/testliner spread increased by 2% w/w to €193/t, while the testliner/OCC spread decreased by 2% to €530/t. OCC was up 1%% w/w to €73/t. It is worth noting that despite testliner pressure, the testliner/OCC spread is only down 1% vs. the 2022 average.
- Lenzing FY 22A results: Lenzing has guided for FY 23E EBITDA in the range of €320-420mn, compared to €242mn in FY 22A. This implies a significant improvement in light of Q4 EBIT firmly in the red. Management have branded 2023 as the “comeback” year, with the top end of guidance depending on a turnaround in textile demand. So far, the China reopening has been positive, with the textile demand outlook “much more positive than a few months ago” and lower inventories across the textile value chain. Lenzing appear confident that the company has sufficient liquidity to cover debt maturing in 2023 (€253mn), while net debt/EBITDA is currently 7.7x. Even with lower CapEx requirements in 2023, and considering EBITDA guidance, seems like there is a lot of hard work required to reduce gearing – capital raise appears likely, in our view.
- DS Smith Q3 trading update: Corrugated box demand remains in the red, although the actual decline was not disclosed (H1 23A: -3% y/y). DS Smith still expect to see an improvement in volumes. Encouragingly, corrugated box prices (50% indexed/50% spot) increased sequentially, despite containerboard prices having declined. Margins (H1 23A EBIT margin: 9.7%) and ROIC continue to improve.
- ICE Dutch TTF Natural Gas Futures continue to decline: YTD, the prices is down a staggering 44%, now trading at €44/MWH. This is beneficial for F&P producers, but especially for testliner and non-integrated graphic paper producers.
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