Downward pressure on China hardwood pulp prices is intensifying, and the report argues this cycle pattern is not unfamiliar

Overview

This report focuses on the position of the China hardwood pulp cycle and its transmission to global pulp prices. Goldman Sachs believes hardwood pulp prices around $600/t are close to peak territory in multiple cycles, because at and above this price level, integrated Chinese paper producers become more competitive relative to non-integrated producers and tend to gain share, thereby suppressing commodity pulp demand and sellers' pricing power.

Core views

The core view is that China hardwood pulp prices still need to fall further to attract sufficient buying and complete sellers' volume allocation. Although China hardwood pulp prices have appeared stable since the end of the first quarter, channel trading volumes in April-May were 50% below normal levels, while sales were below available supply and seller inventories were rising. The report believes sellers face greater shipment pressure at quarter-end, while buyers are in no hurry to place orders; together with new pulp capacity coming online in China and Indonesia before year-end, prices are likely to fall back toward marginal cost until meaningful buying or production cuts stabilize supply and demand.

Analysis framework

The report combines channel checks, RISI quotes, FOEX/PIX China prices, domestic resale prices, global shipment volumes, inventory days, China import volumes, and wood chip prices to assess the position of the pulp price cycle and the sustainability of cross-regional price spreads, supplemented by a valuation table of covered Latin American pulp and paper companies as asset mapping.

Methodology notes

• Price Cycle AnalysisChina Hardwood Pulp Cycle Framework

  Uses the area around $600/t as the observation range for cyclical highs in hardwood pulp, combining trading volume, inventories, and the competitiveness of integrated paper producers to judge price pressure.

  When China hardwood pulp prices approach or exceed $600/t, the competitive advantage of integrated paper producers strengthens, procurement demand from non-integrated producers is pressured, and sellers' pricing power declines.

• Factor and Valuation FrameworkGS Factor Profile

  Compares stocks versus the market and industry peers across four dimensions: Growth, Financial Returns, Multiple, and Integrated.

  Growth, Financial Returns, and Multiple are based on standardized rankings of analyst forecast metrics; Integrated is the composite percentile of Growth, Financial Returns, and value attributes.

• M&A Probability FrameworkM&A Rank

  Classifies the potential acquisition probability of covered companies into levels 1 through 3.

  1 represents high probability of 30%-50%, 2 represents medium probability of 15%-30%, and 3 represents low probability of 0%-15%; when ranked 1 or 2, an M&A component may be included in the target price.

• Database ToolQuantum

  Goldman Sachs proprietary financial database.

  Used to access detailed financial statement history, forecasts, and ratios, supporting both in-depth single-company analysis and cross-company comparison.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China hardwood pulp prices

  Core variable of the report

  Strengths

  Current imported FOEX prices remain at $605/t and have not yet shown a sharp decline on the surface.

  Weaknesses

  Channel trading volume is less than 50% of normal levels, and domestic resale prices are significantly below the imported benchmark price, indicating weak real demand.

  Comparison

  Domestic resale prices of $549-556/t are below imported FOEX at $605/t, and net prices outside China are at least $50/t higher.

  Risks

  If sellers control volumes or cut production more than expected, the pace of price declines may be slower than the report expects.

• Commodity pulp sellers

  Directly affected by the price cycle

  Strengths

  Sellers can control shipments in the short term to support China prices and protect benchmark prices in regions such as Europe and the U.S.

  Weaknesses

  Sales are below available supply, inventories are rising, and quarter-end shipment pressure is increasing.

  Comparison

  The report says similar situations have repeatedly occurred in most bear-market cycles.

  Risks

  New capacity and buyer wait-and-see behavior may weaken sellers' ability to control prices.

• Integrated Chinese paper producers

  Relative beneficiaries when pulp prices are high

  Strengths

  When hardwood pulp is around $600/t and above, integrated paper producers are more cost-competitive and may gain share.

  Weaknesses

  If end-demand for paper products is weak, the cost advantage may not fully translate into profit expansion.

  Comparison

  Compared with non-integrated paper producers, integrated producers are less sensitive to commodity pulp procurement prices.

  Risks

  New capacity, falling paper prices, or changes in the inventory cycle could weaken the advantage.

• Suzano SA, Klabin SA, Empresas COPEC SA, Dexco SA, Empresas CMPC SA

  Covered Latin American pulp and paper assets

  Strengths

  Some companies show positive target price upside in the table, such as Suzano SA and Empresas CMPC SA.

  Weaknesses

  Industry price declines will pressure the earnings and cash flow of pulp producers.

  Comparison

  Ratings include Buy, Neutral, and Sell, with large differences in target price upside.

  Risks

  Pulp prices, exchange rates, leverage, capital expenditures, and changes in regional demand may all affect valuations.

• Essity

  Case study of a European tissue-related company

  Strengths

  Falling oil prices ease pressure from petrochemical, energy, and fuel inputs.

  Weaknesses

  The report cites the view of the European consumer team that FY26 may still see mid-single-digit unit cost inflation, and that second-half gross margin pressure remains underestimated by the market.

  Comparison

  Similar to the 2022 inflation cycle, pricing execution may lag.

  Risks

  European producer prices and Nielsen data still indicate pressure from falling prices or shelf-price deflation.

Key data

• China FOEX imported hardwood pulp price$605/tPrice was flat; domestic resale prices fell by RMB 22-70/t, equivalent to about $549-556/t.
• Arauco and CMPC hardwood pulp quotesabout $580/tAccording to RISI, quoted prices were cut by $20/t; the report believes this is still insufficient to attract substantial buying.
• China FOEX imported softwood pulp price$641/tDown $12/t week over week; domestic resale prices fell by RMB 114-155/t, equivalent to about $584-616/t.
• Global pulp shipments in May+3% month over month, -1% year over yearSoftwood pulp was +7% month over month, hardwood pulp was +2%; year-to-date global shipments are down 2.5%.
• Seller inventory days43 days for hardwood pulp, 47 days for softwood pulpHardwood pulp inventories increased by 3 days month over month, and softwood pulp inventories increased by 1 day month over month.
• China pulp imports in May2.1mtDown 10% month over month and up 4% year over year; among them, softwood pulp was -20% month over month and hardwood pulp was -3%; year-to-date import volume increased 2%.
• China wood chip imports in May-2% month over month, -4% year over yearUp 8% year to date, or about 0.5mt; the report expects imported wood chip prices to also trend downward.
• Valuation table for covered Latin American companiesSuzano SA upside 23.8%, Empresas CMPC SA upside 33.6%The table also shows Klabin SA upside 5.6%, Dexco SA upside 11.6%, and Empresas COPEC SA downside 1.0%.

Impact & implications

For pulp sellers, falling China prices may first compress volumes and pricing power, and then transmit through regional price spreads into markets such as Europe and the U.S.; for integrated Chinese paper producers, relative competitiveness is stronger during periods of high pulp prices, but if pulp prices continue to decline, cost pressure may ease. For Latin American pulp producers and covered paper companies, the investment implications depend on the magnitude of the pulp price decline, the pace of capacity ramp-up, inventory destocking speed, and each company's leverage and cash flow flexibility.

Risks

• Continued seller volume control could delay the decline in China hardwood pulp prices.
• If buyers restock earlier than expected, short-term trading volume and prices may be better than the report expects.
• If new capacity additions are delayed or production slowdowns emerge faster, supply-demand pressure may ease.
• Regional price transmission may be slower than expected due to contracts, logistics, exchange rates, and customer mix.
• Volatility in oil prices, freight rates, and wood chip costs could alter paper producers' cost curves and profit pressure.

What to watch

• Quarter-end shipment pressure in June and the extent of quote adjustments.
• Whether orders from Chinese buyers recover and trading volumes return to normal levels.
• The spread between China FOEX/PIX China prices and domestic resale prices.
• Changes in seller inventory days for hardwood pulp and softwood pulp.
• The pace of new pulp capacity additions in China and Indonesia before year-end.
• Whether net prices in Europe and the U.S. begin to follow China prices lower.
• Trends in China imported wood chip prices, domestic timber supply, and oil prices/freight rates.