The hottest paper industry jumped out of the rise

Paper industry: jump out of the rise and fall of paper price

a complete cycle of the paper industry includes three stages: volume, price and profit. In the rising cycle, the sales volume first picks up, followed by the rise of paper price, and the profit is realized after the most structure. In terms of strategy, we believe that the investment strategy that follows the profit trend is often prone to losses, which is an unconscious investment method, while tracking the fluctuation of paper price and investing in papermaking is a late investment method. We believe that the investment in papermaking should go further and pay attention to the changes in demand, that is, the ratio of output to inventory

benefiting from the steady growth of demand and the appreciation of the local currency

we believe that the prospect of domestic paper demand is still optimistic. Although domestic production capacity is growing rapidly, the overall supply and demand is still expected to be basically balanced in the future. According to the historical tracking of the stock price performance of paper companies in Japan and Taiwan in the range of local currency appreciation, paper companies in relevant countries and regions are generally expected to obtain positive earnings under the background of local currency appreciation

there is a certain debate about whether the papermaking capacity is seriously surplus for a long time. Although there is excess capacity in papermaking at this stage, we hold a negative attitude towards long-term serious excess. By comparing the development stages of the paper industry in Taiwan and Japan, it can be seen that the per capita GDP is in the stage of $2000 - $6000, and the demand for paper products is actually growing rapidly. After the per capita GDP exceeds 10000 US dollars, the marginal consumption growth of papermaking declines rapidly, and even shows negative growth. In 2009, China's per capita GDP was still at the starting level of 3000 US dollars at the constant price of 2000. Therefore, we judge that the consumption demand of papermaking is still in the stage of rapid growth, and there is no need to worry too much about the supply pressure when the per capita consumption of papermaking is less than 150 kg

according to the data of the paper industry association, there were about 3700 paper and paperboard production enterprises in China in 2009, and the national paper and paperboard production was 86.4 million tons, 8.27% higher than that of the previous year; The consumption was 85.69 million tons, an increase of 7.99% over the previous year's 79.35 million tons, of which the per capita annual consumption was 64 kg, an increase of 4 kg over the previous year

according to our above view, per capita paper consumption was in a rapid growth stage before 150 kg, which can refer to the development experience of other countries. According to the data of Japan, South Korea, Taiwan and other regions, the rise of per capita GDP often leads to the increase of per capita paper consumption, and before the per capita consumption reaches 150 kg, the paper consumption should be in a period of rapid growth

our current consumption level is in the 1960s in Japan, 1970s in Taiwan and 1980s in South Korea. From the historical experience of these countries, without exception, it took 20 years to rise from the consumption level of kg/person to 150 kg/person, and then entered a period of slow growth. After rising to 300 kg, it entered a recession stage. Accordingly, we believe that in the future, China's national consumption of paper products will also rise rapidly from the current 64 kg to 150 kg

another evidence of confidence in the future of paper demand comes from the correlation between per capita GDP and per capita paper consumption. As the downstream of paper consumption is relatively scattered, there are too many paper related industries in life. It is generally believed that there is a positive correlation between paper products and GDP. According to the comparison between per capita paper demand and per capita GDP (in US dollars), we can find that when the international paper consumption is in the stage of substantial growth, the corresponding per capita GDP is almost between US dollars. Therefore, we judge that China is in the stage of substantial growth in paper consumption. In the future, with the growth of per capita GDP, more paper products will be consumed, and the current growth of paper production capacity has a certain demand guarantee

we calculate the future demand increment of paper products, and estimate it according to the future per capita GDP growth of 3% (pessimistic expectation), 6% (neutral expectation) and 9% (optimistic expectation). Assuming that the growth elasticity of paper consumption remains unchanged, the estimated growth space of paper demand in the next 10 years is 15.95 million tons, 34.45 million tons and 55.86 million tons respectively, and the future production capacity will be supported by certain demand. During the appreciation period of the local currency, the performance of paper stocks will benefit from the decline of input costs. With the current appreciation of the RMB, the paper sector is expected to continue to rise

the guiding significance of sales volume is greater than the change of paper price

investors seem to be paying attention to the impact of the rise and fall of paper price on the trend of the papermaking sector with the improvement of the requirements of environmental protection and energy conservation and the strengthening of implementation and utilization. However, our analysis found that historically, the trend of paper prices often lags behind the performance of stock prices. In other words, the rise and fall of paper prices cannot be an indicator to guide investment

the recovery of the industry is often accompanied by the recovery of sales and the decline of inventory. With the gradual recovery of capacity utilization, manufacturers will consider appropriate price increases when they believe that the supply of products exceeds the demand. At this time, the expectation of price rise is gradually derived from the channel, resulting in the demand for reserve. Therefore, the demand is effectively amplified and drives the rise of paper prices. However, as a cyclical industry, the best time for the stock price trend is often when the expectation changes, that is, the period when demand picks up and inventories fall. The sharp decline of stock price often occurs in the early stage of inventory accumulation, and the warming demand stimulates the rise of stock price, which was most vividly displayed in early 2009. If demand continues to exceed expectations and the rise in paper prices is sustainable, the stock price will continue to rise. At this time, the representative period is the second half of 2007. But generally speaking, the price trend of paper products often lags behind the stock price

historically, the fluctuation of sales volume is the first step of the whole cycle chain, while the rise and fall of paper price is in the second stage of the chain, and the last is the change of profit. We have long known that the prototype of the water taxi is based on the "one-time" construction, and we have known the cyclical industry profit trend, which often cannot become the vane of investment. Looking up, in fact, the rise and fall of prices should not be used to guide investment. The most direct method should be sales

we use the stock price trend since 2007 and the ex factory price of paper products (paper price PPI) for fitting. From the results, there is no significant correlation between the stock price and PPI time series data, and the correlation is only 0.17. However, if the stock price is fitted with PPI three units in advance, the correlation will increase to 0.60, and 5 units in advance, the correlation will reach 0.79. This shows that the stock price actually reflects the price change months in advance

pay attention to the demand side index output inventory ratio

based on the above analysis, we believe that the investment strategy of closely following the price is actually a method of hindsight, and we need to invest in the time period when the expectation changes, that is, the change of sales volume. Since there is no statistics on the overall sales volume of the industry, we adopt the output method. In addition to each step, Jinan new era Gold Testing Instrument Co., Ltd. will make it clear to customers to simulate this change in demand in the form of inventory

historically, this indicator can better fit the stock price trend. From the correlation test, the historical correlation is as high as 0.75, which basically effectively explains the volatility of stock prices. This is because the stock price always follows the demand. The increase in demand is often reflected in the increase in capacity utilization, the increase in production and the decline in inventory. The data reflect the decline in production/inventory indicators. The cooling demand is reflected in the decline of capacity utilization, the accumulation of inventory and the decline of output. The rise and fall of paper ex factory prices are just the result of demand changes

according to the data, from 2007 to the first half of 2008, the demand driven consumption of paper products was very strong, resulting in the high output inventory ratio, and the stock price also hit a new high. In the second half of 2008, the decline in demand led to inventory accumulation and production decline. At this time, it can be noted that the output inventory ratio fell rapidly. Until November 2008 and February 2009, the output inventory ratio reached the bottom, and the stock price was basically at a low level. The biggest positive factor we learned at that time was the decline in industry inventories, and the paper price has been at the bottom, but the stock price has risen significantly. This further shows that the trend of paper price has no decisive effect on the stock price, and we need to pay more attention to the capacity utilization level and inventory situation of enterprises

therefore, we should avoid the rise and fall of prices and look at the paper industry. For paper stocks, the driving factor behind the rise and fall of share prices should be demand, that is, sales volume or output inventory ratio, rather than the rise and fall of product prices. On the whole, we continue to recommend the current investment opportunities in the paper sector. The current valuation level of papermaking has increased to a certain extent, but it is still at the bottom. The dynamic P/E ratios of Chenming paper, Taiyang paper and Bohui paper, which we mainly recommend, were 13 times, 16 times and 16 times respectively in 2011