The paper industry will enter a new round of active inventory replenishment cycle in the second half of 2020: We have analyzed historical data and found that from November 2016 to January 2020, the paper industry has experienced a complete inventory cycle, which in turn includes active replenishment. Inventory, passive restocking, active destocking, and passive destocking. The last passive destocking cycle was reflected in the period from May 2019 to January 2020, showing that prices were stable at a low level while output was stable at the same time, and inventories were gradually decreasing. The outbreak of the epidemic has delayed demand. We believe that a new round of inventory replenishment cycle will start in the second half of 2020, leading to a new round of rising volume and price in the paper industry.

The supply is stable and the demand is differentiated. In the second half of the year, the demand for cultural paper is more elastic: the new production capacity of cultural paper and packaging paper is less in the second half of the year, and the supply is tight. The core lies in demand. With the basic control of the domestic epidemic situation, the probability that colleges and universities in various regions will return to normal in the second half of the year is very high. The demand for purchasing teaching materials and teaching aids in the opening season of September will return to normal. improve. The demand for packaging paper is affected by exports, and the uncertainty of overseas epidemics will bring risks to the demand for packaging paper. We estimate that if the epidemic is controlled by the end of July, the export volume of packaging paper in 2020 will decrease by 7.35% year-on-year. If the epidemic cannot be basically controlled by the end of December, exports will decrease by 17.65% year-on-year. The recovery of domestic demand will make the marginal demand for packaging paper upward with great certainty. The demand for household paper is relatively stable.

The price of wood pulp fluctuated at the bottom, and the price of waste paper rebounded slightly: The inventories of softwood and hardwood pulp of global producers are both at historically high levels, and there is still a continuing trend. Under the "pressure" of high inventory, the upward momentum of pulp prices is insufficient. Pulp prices are expected to remain low and fluctuate, and the gross profit per ton of cultural paper will show a more certain increase. 2020 is the year of prohibition of external waste. As of 2020, the total approved amount of the eighth batch of external waste decreased by 66.07% year-on-year. The decrease in waste paper imports in the second half of the year is an inevitable trend. The price of domestic waste will rebound slightly as demand picks up. The gross profit per ton of packaging paper will increase with greater certainty, but the extent depends on the control of the epidemic.

Valuation and investment advice: For cultural paper, the second half of the year has high certainty of performance reversal, and valuation is at a low level. The first recommendation is to recommend Sun Paper. In terms of household paper, the performance is stable, the certainty is high, the valuation is more expensive, and the secondary recommendation is Zhongshun Jierou. For packaging paper, the demand reversal in the second half of the year is highly certain, but the elasticity is uncertain. Shanying Paper is recommended. In terms of packaging, it will rebound with the recovery of downstream demand, and focus on recommending Origen, Jinjia shares, and Yutong Technology.

Risk analysis: the risk of sharp fluctuations in the price of raw materials; the risk that the demand for the paper industry is less than expected; the risk that the development of overseas epidemics exceeds expectations.