Nine Dragons Paper expects a sharp improvement in profitability for fiscal year 2026, supported by higher sales volumes, stronger paper pricing and an expanding gap between finished-product prices and raw-material costs.

The Chinese paper producer forecasts net profit of approximately RMB3.9 billion to RMB4.1 billion, representing an increase of 77% to 86% year on year.

Profit attributable to equity holders is expected to reach approximately RMB3.4 billion to RMB3.6 billion, an increase of 92% to 104% compared with the previous financial year.

Beyond the headline earnings increase, the results point to several changes in Nine Dragons Paper’s cost structure. The company is expanding its integrated pulp capacity while refinancing relatively expensive perpetual securities, potentially lowering both raw-material exposure and financing costs.

Paper Prices Rise Faster Than Raw-Material Costs

Nine Dragons Paper attributes much of the expected earnings improvement to a combination of higher shipment volumes and stronger margins.

Sales volumes across its product portfolio continued to increase, allowing the company to spread fixed costs across greater production volumes and capture additional economies of scale.

Pricing provided another important contribution.

According to the company, increases in finished-paper selling prices significantly exceeded increases in raw-material costs during the period.

For a large paper producer, this spread can have a substantial effect on earnings.

Paper mills operate with significant expenditure on fibre, energy, chemicals, logistics and other manufacturing inputs. When selling prices rise faster than these costs, the additional contribution per tonne can flow rapidly into gross profit.

Nine Dragons says the wider price-cost spread improved both its overall gross margin and profit per tonne.

The combination of volume growth and margin recovery therefore explains why forecast profit is rising considerably faster than shipments alone.

US$400 Million in Perpetual Securities Redeemed

Nine Dragons has also taken steps to reduce its financing expenses.

On August 11, 2026, the company completed the cash repurchase and cancellation of all US$400 million of its senior perpetual capital securities, after which the securities were delisted from the Singapore Exchange.

The company financed the transaction using a combination of internal funds and a newly approved RMB2 billion, three-year syndicated loan carrying an interest rate of 2.73%.

Nine Dragons expects the refinancing to reduce its annual interest burden by nearly RMB300 million.

That reduction could provide a continuing earnings benefit beyond the immediate recovery in paper margins.

The transaction also involved Nine Dragons’ controlling shareholder, which the company says voluntarily surrendered approximately US$23 million of premium by tendering its securities at the general repurchase price.

In-House Wood Pulp Capacity Exceeds 5.4 Million Tonnes

Another important part of Nine Dragons Paper’s strategy is vertical integration.

As of the first half of FY2026, the company had more than 5.4 million tonnes per year of in-house wood pulp capacity in operation.

That represents a significant internal fibre source for a producer historically associated strongly with recovered-paper-based packaging grades.

Nine Dragons plans to expand this capacity further.

Approximately 2.5 million tonnes of additional annual wood pulp capacity is expected to enter operation progressively between the end of 2026 and 2027.

If completed as planned, total in-house wood pulp capacity would approach 8 million tonnes annually.

The expansion could change the company’s exposure to international pulp markets.

Vertical Integration Could Reduce Pulp Price Exposure

Market pulp prices can move significantly according to global supply, producer downtime, inventories, exchange rates and demand from major consuming regions.

Paper producers heavily dependent on purchased pulp are directly exposed to these fluctuations.

Greater internal pulp production does not eliminate raw-material costs. Nine Dragons still needs wood fibre, energy, chemicals and capital to manufacture its own pulp.

It can, however, reduce reliance on externally purchased market pulp and give the company greater control over part of its fibre supply.

This distinction is particularly relevant as Nine Dragons expands beyond traditional packaging paper grades.

The company says greater availability of internally produced pulp is helping it increase the proportion of higher-value paper products within its portfolio.

If that transition continues, future profitability will depend not only on reducing fibre costs but also on whether the company can capture stronger margins from its evolving product mix.

Three Drivers Behind the Earnings Recovery

Nine Dragons’ FY2026 forecast consequently reflects three different earnings drivers working simultaneously.

The first is operational: shipment volumes are increasing.

The second is market-related: finished-paper prices have increased faster than raw-material costs, improving margins per tonne.

The third is structural: the company is lowering financing expenses while expanding upstream pulp integration.

The first two factors can change relatively quickly if paper markets weaken or input costs rise again.

The structural measures could have longer-lasting implications.

Nearly RMB300 million of expected annual financing savings can lower the company’s recurring cost base, while close to 8 million tonnes of planned internal pulp capacity could reshape its fibre procurement requirements.

Nine Dragons Moves Toward a More Integrated Pulp and Paper Model

The scale of Nine Dragons Paper means its pulp expansion is relevant beyond the company’s own financial results.

Adding millions of tonnes of internal pulp capacity potentially changes how much fibre the group needs to purchase externally and increases its exposure to upstream wood and pulp production economics.

It also reflects a broader strategic calculation within the paper industry: controlling more of the fibre supply chain can become particularly valuable when raw-material markets are volatile.

For FY2026, however, the immediate effect is visible in earnings.

With attributable profit forecast to rise 92% to 104%, Nine Dragons is approaching a doubling of year-on-year profit.

Whether that improvement can be sustained will depend partly on future paper prices and demand.

But the company’s expanding pulp integration and lower financing costs indicate that the current strategy is about more than benefiting from a favorable pricing cycle. Nine Dragons is also attempting to build a cost structure capable of supporting profitability when market conditions become less favorable.

Last Updated on 25/08/2026 by Jota Machinery