The appreciation of the renminbi reduces the cost of raw materials in the paper industry-Jinling Paper Machine

　　The market rebounded in the first quarter of 2012. In the case of flat industry fundamentals, the sector ushered in a rebound in the first quarter of this year. As of March 23, 2011, the sector rose 17.61%, leading the Shanghai Composite Index by 12.61 percentage points and leading the Shanghai and Shenzhen 300 by 13.24. percentage point. Mainly driven by event factors, the dissolving pulp concept and appreciation expectations, combined with the lower valuation of the sector, have jointly spawned this round of rebound in the market.

　　The high profit of dissolving pulp in 2011 is guaranteed. We believe that the cotton price will consolidate at a high level in 2011, and the price of dissolving pulp will remain high. In 2011, there is a large supply gap for dissolving pulp, and high profits can be maintained. Companies that have dissolving pulp into production will benefit fully.

　　The appreciation of the renminbi may accelerate, reducing the cost of raw materials in the industry. The market generally expects that the pace of people's appreciation will accelerate this year, and the appreciation will help reduce the cost of importing raw materials for the paper industry. We estimate that a 3% appreciation of the renminbi will increase the industry’s overall gross profit margin by 0.502 percentage points; if it appreciates by 5%, the industry’s production costs will be reduced by 4.315 billion yuan and gross profit margin will increase by 0.836 percentage points.