Pulp market roundup: Some softwood producers seeking US$10-US$20/tonne March 1 price increases in North America, Europe and Asia, while hardwood producers hope to keep prices stable as supply rises
March 2, 2014
(Industry Intelligence Inc.)
– There have been scattered March 1 bleached softwood kraft pulp (BSKP) price hike announcements for all of the major markets and none for bleached hardwood kraft pulp (BHKP).
Several, but not all, major BSKP producers are known to have announced their March 1 price increase plans, with others generally expected to follow, with or without formal announcements.
In February in North America, the BSKP prices were unchanged after increasing $20/tonne in January.
In Europe, the February BSKP prices continued to move up, probably by $5-$10/tonne from January, putting NBSK at about $915-$925/tonne. Some producers had announced a February price of $930/tonne. This followed the announced Nov. 1 $920/tonne price, up $20/tonne, that was gradually being implemented and had not fully been reached as of Feb. 1.
In Asia in February, the NBSK price gained another $10/tonne, to $770/tonne (list) for reinforcing grade and $760/tonne (list) for commodity grade. The bleached radiata kraft pulp (BRKP) price was $740/tonne (net) and the Russian NBSK price was $730/tonne (net).
The highest March 1 BSKP increase plan is for North America, up $20/tonne, to $1,030/tonne for northern bleached softwood kraft (NBSK) and $990/tonne for southern bleached softwood kraft (SBSK). North American producer Domtar Corp. led that announcement, on Feb. 24. Canfor Pulp LP and West Fraser Timber Co. are known to have followed for NBSK.
On Feb. 28 International Paper Co. (IP) told customers in North America, Europe, the Middle East and Africa it was raising its March 1 price of SBSK $20/tonne. And it said it was raising its April 1 fluff pulp price $25/tonne in the Middle East, Africa, and Turkey, citing “continued strong demand,” according to an informed source. IP had also announced Feb. 1 price increases, raising its fluff pulp price $40/tonne globally and its SBSK price $10/tonne in Asia and $20/tonne in Europe, the Middle East and Africa.
In mid-February Domtar became the first Canadian or European NBSK producer to announce for Asia and/or China for March 1, saying it would go up $10/tonne, putting its China list price of reinforcing-grade NBSK at $780/tonne. Canfor Pulp on Feb. 24 also went up $10/tonne and to the same price in China. Also on Feb. 24 Metsä Fibre Oy of Finland announced it would increase its list price of commodity-grade NBSK in China to $770/tonne. And West Fraser last week announced its March 1 price would be $770/tonne price, up $10/tonne. Also Catalyst Paper Corp. told customers it would raise its commodity and reinforcing grades of NBSK to $770/tonne and $780/tonne, respectively.
Chile’s Celulosa Arauco y Constitución SA and Russia’s Ilim Group had already announced China BSKP price hikes for March 1. Arauco went up $10/tonne for its BRKP, to $750/tonne (net); the company said on Feb. 21 that the increase was being accepted for all volume. Ilim’s increases for NBSK were to $740/tonne CFR and $700/tonne DAF, up $10-$20/tonne, depending on the starting point, sources said.
For Europe, Södra Cell AB on Feb. 26 announced that its March 1 price would be $940/tonne. Södra had not made a price announcement for February, in contrast to several other major European producers that announced to $930/tonne. For Dec. 1 for Europe, Canfor Pulp had announced to $940/tonne, which was not supported by the market, but Canfor Pulp did not rescind it and the company said last week that its $940/tonne price is in effect for March.
On the BHKP side in February, sources said that in China there was some erosion, that in Europe, prices were mostly stable despite some customers’ pressure, and that in North America, prices were quite solid.
But with the bleached eucalyptus kraft pulp (BEKP) from Suzano Papel e Celulose’s new Maranhão line arriving in markets soon, if not already, BHKP producers are just hoping prices will hold for as much longer as possible.
Because of Maranhão, “[C]ustomers are starting to take a very strong position,” said a sales executive for a Brazilian BEKP producer, adding that in March, “It’s going to be difficult.” He said his company’s stock levels are normal and that it’s “too early for the price to come down” but that it “will depend on how tough the suppliers behave.”
He said he expects overall BEKP pricing in March to be stable, including no change in Europe and North America but perhaps some reduction in Asia, following some erosion also in February. “Asia is different and the volumes are much, much bigger,” he commented.
Capacity angle. Regarding Arauco/Stora Enso Oy’s joint Montes del Plata BEKP pulp mill project in Uruguay, which Stora Enso has said will start up “in the early months” of this year, a source reported a recent briefing by a Stora Enso contact saying that heavy rains had caused major problems with the effluent treating system and that it would have to be repaired and then to run for a while before authorities would issue a permit, all of which would last into mid-April or so.
On the softwood pulp side, Södra announced Feb. 25 that it plans to expand its Värö, Sweden, NBSK mill capacity to 700,000 tonnes/year from 425,000 tonnes/year. It said the mill is already independent of fossil fuels during normal operation, but that the project would also include making the mill even more energy efficient. The $610 million project, which is to be completed in the third quarter of 2016, is a vital part of the company's strategy, said Södra CEO and Group President Lars Idermark.
And on Feb. 28, UPM-Kymmene Oyj announced plans to invest €160 million (US$220.4 million) in its Kymi NBSK/birch pulp mill in Kouvola, Finland, which would increase the mill’s capacity 170,000 tonnes/year to 700,000 tonnes/year.
UPM said the investment would begin immediately, comprising a new pulp drying machine, modernization of the softwood fiber line, a new debarking plant, and improvements in the energy balance of the Kymi integrate consisting of pulp and paper mills.
UPM said the Kymi project would mark a significant part its target to grow its 3.3 million tonnes/year capacity 10% over next three years, and that it would advance the decoupling of the company’s pulp and paper businesses.
Stocks perspective. On Feb. 25, the Pulp and Paper Products Council (PPPC) released its January World 20 chemical market pulp producer statistics, showing that stocks rose five days over December, to 37 days, including increases of three days for softwood sulfate pulp stocks, to 30 days, and six days for hardwood sulfate pulp stocks, to 44 days (standard calculation). Deliveries of 3.405 million tonnes were down 0.3% year-over-year and they sank 13.4% from December.
The January 2014 shipment-to-capacity rate was 82%, compared to 84% in January 2013. The PPPC wrote that the decline in the ratio and the "significant" increase in producer inventories is a typical trend of the month of January, but it also noted that this time the increase in stocks was somewhat higher than average.
In a Feb. 25 research note, RBC Dominion Securities Inc. paper and forest products industry analyst Paul Quinn called the January results “neutral.” He said softwood pulp stocks are now at balanced levels, which he described as ~30 days, and that hardwood stocks are above balanced levels, which he said are ~39 days. The five-year average for January stocks is 32 days for softwood and 41 days for hardwood, Quinn said.
North America slogs. The ongoing logistics problems caused by the extreme winter weather this year in North America are continuing to help support domestic pulp prices, with buyers’ pulp stocks limited because of delivery difficulties week after week.
Along with this, logistics in British Columbia were further clogged by a strike action by independent truck drivers delivering to the Port of Vancouver that began Feb. 26. On March 1, The Vancouver Sun reported that Port Metro Vancouver had obtained an injunction preventing the protesting drivers from blocking access to the port. The disruption comes from 1,200 to 1,300 non-unionized truckers who refused to work in protest of long waiting times and low rates, The Sun reported. It said a strike vote was expected March 1 by their unionized counterparts if their request for a mediator to be brought in was not met.
A market pulp consultant said contacts in North America continue to report difficult transport conditions around the continent. He also mentioned weather-related production problems in the U.S. South, affecting production of fluff pulp and southern mixed hardwood pulp.
Many customers are “hand to mouth with inventory due to shipment delays,” said a U.S. buyer. Suppliers have good production and higher inventories because they can’t get railcars to ship their product and “are forced to ship so much by truck,” he said, “so everyone’s mill warehouses are packed full” and many are storing pulp outside. Meanwhile, he said, some suppliers are admitting that they have “more pulp backed up than they know what to do with because of cars” and that their safety stocks are increasing.
The $20/tonne BSKP price hike plan for March could backfire, and Domtar, which led the announcement, will come to regret it, he said. “NBSK will take a deeper and faster downturn because of their greed,” he said. “Buyers will have a field day with these versus the attempted increases.”
Other North American pulp and paper industry sources have also been pointing out that the tight pulp availability situation could be set to change as winter wanes. “My only concern: when the weather improves,” said a sales executive for a Canadian NBSK supplier, commenting that the pulp that is now unable to be delivered will finally arrive and “it would be a lot.”
On the BHKP side, the January/February gross price for the market was mostly $870/tonne for northern bleached hardwood kraft (NBHK), southern bleached hardwood kraft (SBHK), and BEKP; there was also a maple-grade NBHK price of $880/tonne and there had been an $880/tonne announcement for BEKP that did go through for small customers.
For the week ending Feb. 22, FOEX Indexes Ltd., FOEX Indexes Ltd. said the NBSK price in the U.S. inched up by 18 cents, closing at $1,008.24/tonne.
In its Feb. 25 commentary, FOEX said that while most pulp mills are now running normally, the weather-related production losses in January and early February will affect availability. And it said the weaknesses in the graphic paper market are likely to show in the demand for market pulp in a month or two.
But FOEX noted, on the other hand, that the maintenance downtime period in early to mid- second quarter is nigh. “This will help to maintain a relatively tight supply/demand balance for some more time to come,” FOEX wrote. “But, during Q2, there is a risk of some of the present dissolving pulp supply being converted back into fluff or paper pulp.”
Europe market. A sales executive for a Brazilian BEKP producer said just before the end of February that his company had intended to increase its price in Europe, but that it had encountered resistance and instead was expecting to keep the gross price unchanged, at $760-$770/tonne,
He said 30%-40% of his business still hadn’t been confirmed, with Italian customers “the ones putting on the pressure” and mostly accounting for the lower end of the price range.
He said his company wouldn’t accept a lower February price in Europe, forgoing volume instead. But some competitors appear to be “more flexible on negotiations” with price hikes announced by some seeming to be stalled, he said. Certain sellers instead “just want to negotiate a price they consider to be fair, so of course customers are taking advantage of that,” he said.
Separately, the European Association of Graphic Paper Producers (Euro-Graph) released statistics Feb. 25 showing that the January 2014 shipments of European graphic papers totaled 3.019 million tonnes, falling 4.1% from those of January 2013. The only sector to show positive year-over-year shipping results was uncoated woodfree (UWF) paper.
In his Feb. 25 research note, analyst Paul Quinn commented that the situation of more integrated paper mills in North America and Europe selling pulp “will start to weigh on the market from Q2.”
FOEX notes. For the week ending Feb. 22, FOEX said the NBSK price in Europe gained $1.47/tonne, closing at $918.02/tonne, while in euros it rose €1.08/tonne, to €669.75/tonne. FOEX said that an increasing part of the announced hike, typically to $930/tonne, was showing in its benchmark value by mid to late February.
FOEX noted that week over week (Feb. 21 over Feb. 14), the euro was unchanged compared to the U.S. dollar. Today the euro is at US$1.37765 and the Canadian dollar is at US$0.90268.
FOEX said the BHKP price in Europe moved up 19 cents/tonne, to $768.02/tonne. In euros it gained 14 cents, to €560.31/tonne, but FOEX said the number of quotes received in euros was not sufficient to calculate a meaningful average.
In its Feb. 25 commentary, FOEX noted that because Europe is a net exporter of paper-grade BSKP pulp, the imports from North America play a less important role than what they did in the more distant past. “Still, the weather-related supply and delivery problems in North America have an impact on the supply/demand balance here as well,” FOEX wrote, commenting also about some of the disruptions in Europe, including the recovery boiler problem at Stora Enso’s Skoghall mill in Sweden and downtime being taken at the mill in Tarascon, France, in February.
“With port stocks unchanged at a fairly low level and down in January y-o-y also at the consumer side, the market balance remains solid, supporting the early year price increase efforts,” FOEX wrote. It said the price gap between the NBSK and BEKP has widened to $150/tonne in Europe and that it has exceeded $100/tonne in China, at least in gross price terms. “This differential is wide enough to trigger further attempts to change the furnish more and more towards BHKP, especially as most analysts predict the price differential to remain wide for some time to come,” FOEX wrote.
“Together with more capacity and demand in the tissue sector, the market BHKP demand is expected to be good in 2014. On the other hand, new supply is very substantial, too,” FOEX wrote. It said the first lots of Suzano’s Maranhão pulp are reaching customers now and it noted that much new supply would be coming from the Montes del Plata mill in Uruguay and the new Oji mill in China.
China changes. A sales executive for one of the Canadian NBSK producers said sales had been concluded at the new March prices (up $10/tonne), although “not everyone is jumping at it.” As for suppliers, the source said, “I haven’t heard anyone under pressure, selling or doing deals. Pretty much everyone is at that price. [Customers] might as well place orders to get tonnes.”
The source name a Western Canadian producer said to be advising its buyers in China that its supplies are limited because of production issues. And in Western Canada, there are logistics problems “everywhere,” with rail cars stuck and the truckers having struck at the Port of Vancouver and so on, the source observed.
NBSK inventories in China weren’t high to begin with, said the source, adding that customers have been using the pulp and noting also that there was less urgency to sell pulp to China in the past year. “Europe and the U.S. were stable and strong so [producers] didn’t have to ship to China,” the source said.
Meanwhile, “China has been consuming even though the economy is not as good as people had hoped for. Expansions are still going on,” the source said. “Not every paper mill has the ability to hold inventory and in 2013 there was not a lot of excess—just normal.” Traders’ softwood pulp stocks were “healthy, normal, which was to the sellers’ advantage because they were not high, the source added.
Another BSKP source (not NBSK) was also confident about March conditions in China. “There is no doubt in my mind that the price increase will go through,” he said. “We are inundated by inquiries for spot tonnage.”
But he said his company is heavily contracted and backlogged on orders, so it is not looking for extra business.
As for some talk that the March $10/tonne could be the proverbial last straw and that customers would stop buying, he said, “I don’t think so. They’ve been threatening to do that all along” but they “haven’t filled up their warehouses with Russian pulp” and their margins still warrant buying the tonnage.
A sales executive for a Brazilian BEKP producer expected the February price in Asia to come down $5-$10/tonne from what he said was the January gross price range of $655-$660/tonne.
He disagreed with some indexes that showed that the January price, too, had dropped $5-$10/tonne, saying that his company held its January pricing. (Some other BEKP producer sources also have disputed that there was a January price drop.) “It is happening in February, but not in January,” he said.
This would put the February net price in the $605-$615/tonne range, down from January’s $610-$615-$620/tonne range, he said.
He said a few customers were willing to confirm their agreed-upon volume if his company would reduce its February price by $5-$10/tonne and that he was expecting an average decrease of $5/tonne. March could see some further erosion as new pulp supply comes into the picture, he said.
Separately, as reported Feb. 25, China imported 1,617,832 tonnes of pulp in January 2014, rising 19.1% from January 2013 and 3.3% from December 2013, according to China Customs Bureau statistics. This was one of the highest monthly totals on record, just short of March 2012’s 1,623,333 tonnes. BSKP imports totaled 611,924 tonnes, growing 12.7% from a year ago and 4.2% from a month ago. BHKP imports of 599,457 tonnes gained 25.1% year-over-year but dropped 8.4% month-over-month.
FOEX on China. For the week ending Feb. 22, FOEX said the NBSK index in China headed $1.43/tonne higher, to $754.63/tonne, while the BHKP index lost $7.26/tonne, closing at $653.65/tonne.
In its Feb. 25 commentary, FOEX said the supply-chain problems are keeping the BSKP supply/demand balance tight. It said that while the widening price gap threatens to switch some of the demand from BSKP toward BHKP, this risk so far does not seem to have had an impact on pricing.
FOEX said there is limited availability of spot volumes and that spot prices have been at or in some cases above the net prices of normal annual contract sales.
“As a side-note, the UKP (unbleached kraft pulp) market is equally tight, spot volumes are hard to come by, and the price differential between BSKP and UKP has narrowed over the past 12 months,” FOEX wrote.
On the BHKP side, FOEX said the return of Chinese pulp buyers from their Lunar New Year holidays “has not triggered all that much activity in fibre markets.” FOEX said inventories are adequate and “while shipments from Indonesia appear to experience some problems, the new supply from Latin America starts compensating.”
FOEX said another reason for the slowing down of the demand pull is that overcapacity in tissue paper production in China means that some of the mills are running well below their capacity and that some tissue machine orders have been postponed to a later date.
“Spot volumes of different BHKP grades are readily available which adds to the price pressures,” FOEX wrote.
China currency. A market pulp consultant noted on Feb. 27 that the 1½% devaluation of China’s currency adds $8/tonne to the price of hardwood pulp and $10/tonne to the price of softwood pulp.
“I think that’s why BCTMP came back—because it’s so cheap,” he commented, in reference to relatively inexpensive bleached chemi-thermomechanical pulp.
On Feb. 28 ft.com reported that the renminbi capped its biggest weekly fall in years, with its steepest drop of the week on Friday as traders reported heavy intervention by China’s central bank to weaken the currency. At one point on Friday the currency fell nearly 1% on the day and touched 6.18 to the U.S. dollar, “approaching a key 6.20 level at which some analysts estimate big losses would be triggered on complex structured derivative bets,” ft.com reported.
In a Feb. 26 report, The Wall Street Journal said that in the past week, the People’s Bank of China had been guiding the yuan lower against the U.S. dollar, by setting a weaker benchmark against which the yuan can trade, and that it had also intervened in the currency market by directing state-owned Chinese banks to buyer dollars, according to traders.
It said these moves brought the yuan to its weakest level in seven months and represent a reversal of the practice for most of last year, when the central bank kept pushing the yuan higher against the dollar, even as the currencies in other emerging countries tumbled. People familiar with the central bank’s thinking said the recent decline was aimed at shaking out speculators as China prepares to allow a wider trading range for the yuan, the WSJ reported.