The turning point for yet another trillion-dollar industry has arrived!

On March 21, several paper companies including Sun Paper, Wuzhou Specialty Paper, and Xianhe Co. announced a uniform price increase of 500 yuan per ton for their digital paper and related products. This marks the sixth wave of concentrated price hikes since the industry began raising prices in August 2025.

In 2026, the papermaking industry is showing signs of recovery; which specific type of paper product will benefit the most?

[Breaking Away from Internal Competition]

Similar to many traditional industries, the paper industry has finally caught a breather after years of fierce price wars.

In early July 2025, an important meeting explicitly required the legal governance of companies engaging in low-price disorderly competition and promoted the exit of outdated production capacity, establishing a policy tone for combating internal competition. Subsequently, rapid actions unfolded within the industry. The Guangdong Province Paper Association, representing the largest paper-producing province, was the first to issue an initiative against internal competition, clearly opposing sales below cost. Provinces like Jiangsu quickly followed suit.

These initiatives received positive responses from companies. Industry leaders such as Nine Dragons Paper and Lee & Man Paper cooperated by scheduling machine shutdowns for maintenance. Starting from August 2025, multiple large paper companies successively issued price hike notices, driving up paper prices and marking the beginning of the industry's recovery.

Taking the case of Nine Dragons Paper's containerboard, its price dropped to 4,230 yuan per ton in April 2025, the lowest point in nearly a decade, marking a drop of over 40% from its 2017 peak. After the implementation of 'anti-internal competition' measures, the price has now rebounded to around 4,650 yuan per ton.

▲Source: Wind

As the 'anti-involution' trend becomes a clear direction, paper prices are gradually stabilizing, and the paper-making sector has started a valuation recovery after nearly four years of decline.Industry-leading companies that can maintain strong profitability during cyclical downturns are more favored by the capital markets.

Nine Dragons Paper has more than doubled from its bottom, leading the paper sector in both Hong Kong and mainland China markets, directly related to the rapid release of performance. In the first half of the 2026 fiscal year (ending December 31), the company’s revenue increased by 11.2%, while net profit surged by 318.8% to reach 1.97 billion yuan. The company also recorded the highest sales volume for the same period in three years, with an average selling price rising 2.7% year-over-year against market trends.

In addition, the company has added 2.5 million tons of paper production capacity and 2.35 million tons of pulp production capacity at its Beihai, Guangxi and Jingzhou, Hubei bases. This marks a key step forward in the company’s 'pulp-paper integration' strategy, improving raw material self-sufficiency and reducing raw material costs, driving a significant increase in gross profit.

As the largest market cap leader in the A-share paper sector, Sun Paper Industry experienced relatively smaller share price adjustments during this cycle and began rebounding earlier. This is closely related to the company's consistently superior performance compared to the industry average. During the overall paper price downturn from 2021 to 2024, Sun Paper maintained annual profits of around 3 billion yuan, while many competitors faced significant profit declines or even losses. Its core advantage lies in its ability to control costs at a low level.

▲Historical performance of net profits attributable to shareholders of three leading paper companies, Source: Wind

[New Cycle Starting Point]

Against the backdrop of 'anti-involution,' the paper industry has actually reached conditions for initiating a new upward cycle.

Looking back at the previous boom cycle from 2020 to 2021, it was primarily driven by supply-side reforms since 2016 that tightened supply, coupled with increased export and online demand spurred by the pandemic. Stimulated by high activity levels, several paper leaders significantly boosted capital expenditures in 2021-2022, with year-on-year increases exceeding 20% and 25%, respectively. The rapid expansion of capacity also set the stage for the subsequent downward cycle.

▲Capital expenditure and growth rates of major paper-making enterprises, Data source: Youxin Little Tiger

In the following two years, industry competition intensified, and corporate capital expenditures began to contract, even falling by 16.7% in 2024. This made that year's capacity expansion the third lowest level in the past decade, with new capacity additions continuing to show a downward trend in 2025.

The demand for the paper industry is closely related to macroeconomic conditions and has obvious pro-cyclical characteristics. The package of policies introduced after September 2024, along with the implementation of 'anti-internal competition,' played a key role in driving economic recovery. Currently, core economic indicators such as CPI, PPI, and industrial profits all show continuous marginal improvement, confirming that the economy is gradually moving towards recovery. A rebound in the macroeconomy will naturally boost demand for paper products.

Learning from history allows us to understand rise and fall. By summarizing patterns from the past several major cycles,The turning point for this cycle in the paper industry will be 2026.

Since 2008, the paper industry has gone through four complete inventory cycles, each lasting approximately 37 to 43 months. These cycles share some common patterns.

On one hand, the start and turning points of each cycle are closely related to macroeconomic changes or significant industrial policies (such as supply-side reforms and environmental inspections).

On the other hand, leading enterprises demonstrate stronger resilience during these cycles. Each cycle prompts a group of small and medium-sized enterprises to exit the market, while the market share of leading companies continues to rise—the combined market share of the top ten domestic paper companies has increased from 28% in 2008 to over 50% in recent years.

More importantly, observing each upward cycle, the transition from 'active destocking' to 'passive destocking' represents a critical left-side inflection point. Notably, at the end of active destocking, demand starts to recover, inventories continue to decline, but product prices already have upward momentum. When entering the passive destocking phase, it usually signifies that the industry’s upward cycle has officially begun. The rally in the paper sector often leads or coincides with this inventory turning point.

Currently, the paper industry is at a critical juncture transitioning from active destocking to passive destocking.Futures inventory in the upstream pulp segment has dropped to 182,000 tons, accelerating destocking and reflecting that supply and demand are moving towards balance. In terms of finished paper products, inventories of major items such as containerboard continue to decline, with industry inventory pressure now falling to a relatively reasonable range.

[Corrugated board paper: faster and stronger]

The paper industry is capital-intensive and labor-intensive, but the market size is far from small. According to the China Research Institute of Prudential Industry, the total scale of China's paper industry exceeded 1.1 trillion yuan in 2025 and is expected to rise to 1.5 trillion yuan by 2030, with a compound annual growth rate of over 7%. Furthermore, the industry chain structure is clear and not overly complex.

Upstream raw materials mainly include wood pulp and waste paper. The midstream process involves paper production, with product categories covering cultural paper, packaging paper (including corrugated board paper and white card paper), tissue paper, and specialty paper. In downstream applications, different types of paper correspond to different fields. Cultural paper is primarily used for books and periodicals, white card paper is utilized for pharmaceuticals, tobacco, and food packaging, while corrugated board paper is mainly applied in e-commerce and express logistics sectors.

Among various paper products, corrugated board paper may be the one experiencing a faster cyclical rebound with higher certainty.

On one hand, the expansion of corrugated board paper supply has largely concluded, and its market structure is clearer compared to other paper types. Statistics show that from 2023 to 2025, over 15 million tons of new corrugated board paper capacity has been put into operation, signaling the end of the industry's expansion phase. Among major players, Nine Dragons Paper suspended its capacity expansion starting in 2024, Shanying International’s new capacity in Anhui faces delays before it can come online, Lee & Man Paper has no expansion plans, and Sun Paper only plans to release 700,000 tons of new capacity by the end of 2026.

On the other hand, the supply-demand dynamics of corrugated board paper have relatively performed better compared to other paper categories over the past few years. From 2015 to 2024, annual production growth for corrugated board paper averaged about 3.41%, while consumption growth reached an average of 5.06%. In contrast, during the same period, tissue paper saw average annual production and sales growth rates of 4% and 3.65%, respectively. Cultural paper, affected by digitalization, had the lowest average annual consumption growth rate at just 1.75% among all paper types.

From this perspective, leading companies with a high proportion of corrugated board paper business are expected to be the first to benefit from the industry recovery.

In terms of market structure, the top four companies in 2024 were Nine Dragons Paper, Lee & Man Paper, Shanying International, and Sun Paper, holding market shares of approximately 23%, 12%, 12%, and 5%, respectively. For these four companies, corrugated board paper revenue constitutes a significant portion of their total income.

▲Market distribution of domestic corrugated boxboard, Source: Guosen Securities

Among them, Lee & Man Paper and Shanying International rely heavily on waste paper as the raw material for corrugated board paper, which could adversely affect performance. Specifically, waste paper prices began to rise significantly in the second half of 2025, mainly due to short-term supply tightness caused by weather conditions and the impact of new import policies.

Looking further into Nine Dragons Paper, the company has invested in building pulp production lines and developed recycled pulp capacity, advancing its 'pulp-paper integration' strategy to reduce costs and stabilize supplies. This move significantly enhanced the company’s profitability in the 2026 fiscal year. According to plans, between the fourth quarter of 2026 and the first quarter of 2027, the company will also commission an additional 2 million tons of chemical pulp production capacity, further strengthening its cost advantage.

Unlike Nine Dragons Paper, Sun Paper has extended its industrial chain further upstream and is one of the earliest companies in the country to pursue 'forest-pulp-paper integration.' By 2024, the company holds usage rights to 460,000 hectares of forestland in Laos, with about 60,000 hectares already planted, and plans to add over 10,000 hectares annually. This is also one of the key reasons why Sun Paper’s operating costs are lower than most competitors, giving it stronger future growth potential.

All in all, driven by factors such as the promotion of 'anti-internal competition' policies, slower supply expansion, and inventory cycle shifts, the recovery of the paper industry is becoming increasingly evident. Among these, the containerboard sub-sector is expected to become a leader in this cycle of recovery, with Sun Paper and Nine Dragons Paper positioned as core beneficiaries. The strong performance of their stocks since hitting bottom in late 2025 also confirms these expectations. $Shandong Sun Paper (002078.SZ)$$Wuzhou Special Paper Group (605007.SH)$$ND PAPER (02689.HK)$

Text by Xiao Li Fei Dao

Disclaimer

This article contains content related to listed companies, reflecting the author's personal analysis and judgment based on information disclosed by these companies in accordance with their legal obligations (including but not limited to interim announcements, annual reports, and official interactive platforms). The information or opinions presented in this article do not constitute any form of investment or other business advice. Market Value Observer assumes no responsibility for any actions taken as a result of adopting the content of this article.

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