Against the backdrop of overcapacity in the paper industry—where per-ton profit margins for most paper grades have long remained at low levels—new pulp production capacity in China continues to come online. This seemingly contradictory expansion behavior is underpinned by a clear industrial logic: it is not merely a simple expansion of scale, but rather a strategic transformation by industry leaders, shifting from a pure "paper-making" model to one of "pulp-paper integration."
The "Certainty" and "Strategic Significance" of China's Pulp Market in 2026
In 2026, the global addition of new pulp capacity will be highly concentrated in the Chinese market, with planned capacity additions totaling 6.069 million tons. However, the commissioning dates for most of these projects remain undetermined, leaving open the possibility of delays; currently, the portion considered relatively certain to come online stands at 2.13 million tons. Concurrently, an internationally planned addition of 1.4 million tons of new hardwood pulp capacity is also highly likely to be postponed until early 2027. Amidst the sustained pressure on profit margins within China's paper industry, leading enterprises continue to push forward with capacity expansion. The underlying logic is to construct a "cost moat"—a structural cost advantage—to break free from the constraints of external pricing mechanisms. Simultaneously, by leveraging the expansion into diversified paper grades, these leaders aim to accelerate the restructuring of the industry landscape and seize the critical opportunity for domestic substitution. In summary, the actual incremental supply in the pulp market in 2026 is expected to be limited; the new capacity additions reflect, above all, strategic structural adjustments by leading enterprises rather than a significant loosening of immediate supply-demand dynamics.
Building a Cost Moat to Break Free from External Pricing Constraints
Historically, Chinese paper manufacturers have relied heavily on imported market pulp. However, pricing power for global hardwood pulp is highly concentrated among South American pulp mills; consequently, despite being the world's largest buyer, China possesses limited bargaining power. Under this market structure, the profitability of paper companies is largely dictated by fluctuations in external pulp prices. Taking 2025 as an example: while external market prices for hardwood pulp recorded six consecutive months of increases, downstream base paper prices struggled to keep pace due to sluggish demand. This situation trapped a large number of paper companies in a profit-squeeze dilemma characterized by "rising costs but stagnant paper prices."
Establishing self-sufficient pulp production lines represents a fundamental shift away from this passive predicament. Between 2020 and 2025, China added nearly 20 million tons of new virgin pulp capacity; notably, the new capacity contributed by industry leaders—such as Nine Dragons Paper, Liansheng Paper, and Jianhui Paper—accounted for 52.58% of this total increase. Taking Nine Dragons Paper as an example: between 2022 and 2025, the company undertook large-scale investment and construction of wood pulp production capacity across locations such as Shenyang, Chongqing, Jingzhou, Beihai, and Dongguan. As multiple projects reach full production capacity during 2026–2027, the company's self-sufficiency rate for wood pulp is expected to continue rising significantly, thereby establishing an absolute cost moat. Leading paper manufacturers in China are currently transitioning from the first stage—driven primarily by scale expansion—to the second stage, which relies on vertical integration of pulp and paper production to solidify their core profitability.
Industry Landscape Reshaped; Leaders Initiate Diversification into New Paper Grades
The paper industry is currently undergoing a profound shakeout. The market for traditional paper grades is nearing market saturation, prompting leading paper enterprises to accelerate their diversification strategies in order to mitigate risk and capture new market segments. Data indicates that between 2020 and 2025, industry leaders such as Nine Dragons Paper and Liansheng Pulp & Paper—often referred to as "black paper giants"—accounted for 47.05% of the newly added production capacity for white cardboard, and 33.33% of the new capacity within the offset printing paper sector.
The fundamental underpinning of this cross-grade expansion strategy lies in the accompanying, self-owned pulp production lines which confers a significant cost advantage upon these new entrants, enabling them to employ aggressive low-price competition strategies within these new market segments. This factor also explains why, since 2024–2025, the profitability of most paper grades has remained at persistently low levels.
Seizing Opportunity for Domestic Substitution
In terms of China's supply landscape, 2025 is expected to see the volume of imported wood pulp and the domestic output of virgin pulp grow in tandem. According to data from the General Administration of Customs, wood pulp imports are projected to reach 27.9364 million tons in 2025—a year-on-year increase of 7.02%. Concurrently, data from the China Paper Association indicates that domestic virgin pulp production is expected to rise by approximately 6.82% year-on-year, reaching 33.5 million tons; the respective market shares of imports and domestic production are projected to remain unchanged compared to 2024 levels. Looking ahead to the global supply landscape in 2026, the market for commercial pulp is expected to operate under a state of tight equilibrium; as the next major commercial pulp project is not anticipated to come online until 2027, there is currently no highly certain source of new supply projected to enter the market during this intervening period. During this specific window of supply and demand, industry leaders face a strategic opportunity to accelerate their expansion into the upstream sector. By securing production capacity in advance, they can not only mitigate the risks associated with future price volatility in market pulp but also gain a first-mover advantage within the ongoing process of domestic pulp substitution.
The Structural Balance Between Captive Use and Market Pulp
Examining the new pulp capacity scheduled to come online between 2024 and 2025, Fujian Liansheng’s hardwood pulp output is primarily intended for captive use—with only a portion allocated for external sales—while its chemi-mechanical pulp is designated entirely for internal consumption. Similarly, in the Guangxi region, the hardwood pulp produced by Nine Dragons, Sun Paper, and Xianhe is predominantly for captive use, with only marginal volumes sold externally. Regarding the ratio of captive versus market pulp for new capacity additions projected for 2026, there are currently no publicly available industry statistics, nor have individual enterprises publicly disclosed such data.
This structural characteristic validates the core logic underpinning the current wave of capacity expansion: a vertical integration strategy prioritizing "captive use as the primary objective, supplemented by external sales," rather than a mere expansion of market pulp supply.
Against the backdrop of mounting profit pressures within the paper industry, the concentrated rollout of new pulp capacity does not represent irrational expansion; rather, it constitutes a strategic choice by industry leaders to counter the global imbalance in pricing power, construct a "cost moat" to protect their margins, and seize the strategic opportunity for domestic substitution. With this current expansion cycle driven primarily by captive demand, the industry is undergoing a profound structural transformation—shifting its fundamental focus from mere "paper manufacturing" to "pulp-paper integration." This implies that, over the coming years, the raw material self-sufficiency rate among domestic paper manufacturers will continue to rise. Consequently, industry competition is extending beyond the "paper end" of the value chain to encompass the "pulp end"; leading integrated pulp-and-paper enterprises—particularly those possessing upstream forestland assets and green energy capabilities—are poised to assume a dominant position in the upcoming industry cycle.
