• May highlights for pulp, graphic paper and packaging: Paper pulp prices were firmly in the red across all regions, with hardwood hit the hardest in China (-23%), followed by Europe (-11%). Graphic paper prices in Europe edged down further (-1% to -3%), however remain well above their historical levels. In the US, CFS was surprisingly stable. Kraftliner and testliner prices dropped 4% m-o-m, marking the 11th consecutive monthly y-o-y drop. Encouragingly, containerboard prices have been stable in recent weeks. Meanwhile, OCC rocketed 14% m-o-m, now trading at €99/t.
  • May highlights for DP and VSF: Imported hardwood DP price edged down 2% m-o-m (+3% in ZAR) and down -19% y-o-y to average $903/t and appears to have stabilized around $900/t. The DP/pulp spread averaged over $400/t and seems that most swing capacity would have already swung. Meanwhile, VSF prices edged down -1% m-o-m in line with cotton (based on the COTLOOK Index). VSF operating rates have continued to improve reaching 87% (historical average: 77%) and inventory days continue to drop, now sitting at 13 days, well below the historical average of 20.
  • Compared to the 5-yr average EV/EBITDA (x), most of the sector continues to trade at a discount except for Mercer (+29%), Lenzing (+13%) and Stora Enso (+2%): Clearwater Paper, Billerud and DS Smith are trading at the deepest discounts (52%, 39% and 23%, respectively). Clearwater Paper (2.7x), Sylvamo (3.1x) and Sappi (3.6x) are the lowest in the sector. Meanwhile, Mondi is trading at 5.9x, a premium to Smurfit Kappa and DS Smith.
  • In May, most packaging and graphic paper producer share prices were in the red in Europe and North America except for Mondi, up 5%: Top losers included Norske Skog (-18%), Nordic Paper (-18%), and Clearwater Paper (-16%), while top gainers included Metsa Board (+15%) and all South American pulp producers.
  • Based on consensus, the average 1-yr dividend yield of the sector is 4%: Lifting the average is Nordic Paper (10%), Navigator Company (9%), International Paper (6%) and DS Smith (6%). Not far off is Sappi (5.5%) and Mondi (4.6%).
  • Consensus EBITDA across our peer universe implies mixed y-o-y changes in 2024: Earnings are expected to come under pressure for Navigator (-13%), Nordic Paper (-11%), Sappi (-9%), Sylvamo (-8%) and DS Smith (-7%). Meanwhile, Mercer (+76%), Lenzing (+55%) and Stora Enso (+20%) are expected to the see the largest improvements in profitability.
  • Cost deflation continues: Gas prices in Europe dropped 25% m-o-m (-65% y-o-y), while gas prices in the US were down only 1% m-o-m (-74% y-o-y). Caustic soda prices in Europe were stable (-21% y-o-y), while they dropped 3% m-o-m in the US (+6% y-o-y).

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