Paper & Forest Products
Pulp Stats: Higher shipments and operating rates, but lower NBHK prices

December 22, 2015

RBC Dominion Securities Inc.
Paul C. Quinn (Analyst) (604) 257-7048; paul.c.quinn@rbccm.com

Impact
Positive. PPPC World-20 pulp stats for November showed that hardwood stocks are just above balanced levels while softwood remain near balanced levels.

Highlights
Lower inventories m/m – Combined days of supply were one day lower m/m at 35 days. Softwood stocks remained unchanged m/m at 30 days and remain at the upper end of balanced market levels (~28-30 days). Hardwood stocks fell by one day m/m to 40 days and are now just above balanced levels (~39 days). Five-year average for November stocks = 28 days for softwood and 40 for hardwood.

Shipments tracking 2.9% higher in 2015 11Mo-YTD – Total shipments were 4.0MM tonnes in November, up 4.6% m/m and 2.9% higher y/y. Softwood shipments increased 0.2% y/y (+0.9% m/m) while hardwood shipments rose 4.9% y/y (+8.1% m/m). Shipments to China were 3.4% higher than a year ago as hardwood volumes continue to surge 17.2%, are been partially offset by a decline in softwood volumes (-8.5%). NA volumes inched up 0.1% y/y, and Western European shipments rose by 1.3%.

Operating rates higher m/m – The all-in operating rate (i.e., ship-to-cap rate) of 93% rose from 86% in the prior month but was slightly lower than the 94% a year ago. Softwood also increased from 89% in October to 93% in November and hardwood jumped from 84% to 94%.

NA softwood list prices remain steady, but prices in China may soon dip – RISI's PPW preliminary NA softwood list prices for December remained unchanged at $940/tonne. In China, a major producer dropped its BSK prices by $15/tonne, contrary to the hikes that Canadian producers tried for earlier this year. We expect NA NBSK list prices to average $975 in 2015 and $965 in 2016. On the hardwood side, NA BEK preliminary list prices fell slightly to $905, their first drop since their $10 increase in August.

More pulp capacity coming, but most on the hardwood side – APP is building the single-largest hardwood pulp line (~2.8MM tpy) in the world in Sumatra for early 2017 start-up. Fibria is constructing a 1.75MM tpy BEK pulp line at its Tres Lagoas facility for Q417 start-up, while Eldorado is building a new BEK line (over 2.0MM tpy) at Tres Lagoas, Brazil for H118 start-up. Further out, Lwarcel is planning a new BEK line at its Lencois Paulista, Brazil BEK mill of 750K tpy, with an expected H119 start-up, and a Chinese/Russian JV plans to add 500K tpy of softwood/hardwood pulp capacity in Western Siberia by early 2020. At the same time, however, we note that RISI reported that Arauco is converting 550k tpy of hardwood and softwood kraft pulp to viscose pulp (commodity DP).

On the softwood side – Domtar is adding 515K tpy of BSK in 2016. UPM plans to increase capacity by 170K tpy at its Kymi mill in Finland in H215. Klabin is moving ahead with a 1.5MM tpy addition in Brazil for March 2016 (300–400K softwood., Metsa is proceeding with a Finnish 1.3MM tpy mill (800K softwood) for Q317 start-up, and Sodra will increase NBSK production by 500K in Sweden by 2018 (most in late 2016). Further out, new entrant Finnpulp is working on a €1.4B 1.2MM tpy NBSK pulp mill in Finland, with production expected to start in 2019, while Ilim is planning to increase capacity at its Ust-Ilimsk mill by ~220K tpy before 2021.

All values in USD unless otherwise noted.

Priced as of prior trading day's market close, EST (unless otherwise stated).
RBC Dominion Securities Inc.
Paul C. Quinn (Analyst) (604) 257-7048; paul.c.quinn@rbccm.com

Paul Quinn is an analyst at RBC Capital Markets (Royal Bank of Canada) and can be reached at paul.c.quinn@rbccm.com