March global softwood pulp prices may march upward, while hardwood pulp prices will likely remain stable

Diane Keaton

Diane Keaton

Feb 13, 2011 – Forestweb

LOS ANGELES , February 13, 2011 () – As expected, there have been announcements of plans to increase bleached softwood kraft pulp (BSKP) prices on March 1.

The first was Domtar Corp.’s, on Feb. 9, up US$30 per tonne in North America on northern bleached softwood kraft (NBSK), to $1,000/tonne. That was followed two days later by Canfor Pulp LP, also going up $30/tonne, and for all markets, putting its new prices at $990/tonne in the U.S., $980/tonne in Europe, and $900/tonne in China. Canfor Pulp produces reinforcement-grade NBSK and its current price in China is $870/tonne; the commodity NBSK price is currently $860/tonne.

On Feb. 14--it was still Feb. 13 in North America--Oy Metsä-Botnia Ab in Finland announced that it will raise its March 1 price of NBSK in Europe to $980/tonne. This was the first known March announcement by a European producer.

Sources generally expect the January “World 20” statistics to show further decreases in pulp supply, on top of the December numbers, which were down to 30 days, including 25 days for bleached softwood pulp and 37 days for bleached hardwood pulp.

But in his recently published monthly report, market pulp consultant Brian McClay said end-January hardwood pulp stocks are likely to have reversed at least part of December’s five-day decrease. He said there were more limited January purchases of bleached eucalyptus kraft pulp (BEKP) compared to the high December levels and that there were also wet-weather-related shipping delays from Southeast Asian bleached hardwood kraft pulp (BHKP) mills, while no significant pulp downtime was taken during the month.

The restart of Celulosa Arauco y Constitución SA’s (Arauco) 500,000 tonnes/year bleached radiata kraft pulp (BRKP) Line 2 in Arauco, Chile, which was damaged in the Feb. 27 magnitude 8.8 earthquake, got underway at the end of January, and Arauco expects it to reach full capacity this month, a company official told Forestweb today. Chile was also struck by a magnitude 6.8 earthquake this past Friday, Feb. 11, in the same region hit by last year’s earthquake, but the Arauco official said “nothing happened.”

Arauco has not yet made price announcements for March.

Pulp sellers are feeling upbeat about market and price conditions. “You can’t overlook the fact that economies are getting better around the world, that developing nations are raising their standard of living” and demanding more printing and writing paper and tissue,” said one such source, commenting on the current strong pulp demand conditions.

The market probably will be able to absorb the Arauco Line 2 output without too much difficulty, he said, adding that although there is some additional hardwood pulp being produced here and there, it is “not big chunks like last year.”

A North American-based pulp agent said global softwood pulp supply is tighter this month than last and that the first quarter is “a lot stronger than everyone expected. We were all kind of nervous about what it would be,” he said. Softwood pulp, he said, “will be in pretty good shape this year, until there is more dissolving (pulp) capacity,” thanks to the lack of new capacity coupled with the stronger demand. Describing the overall BHKP market, he said, “I think everyone was surprised and glad it’s holding.”

(As for new capacity, last April 21, Ilim Group in Russia announced plans to build a new 1 million tonnes/year pulp mill Bratsk, saying it would be completed in 2012 at a cost of about $700 million. The mill would produce both softwood and hardwood pulp, primarily to be sold in China. In a Feb. 1 press release, Ilim said total market pulp production of its mills in 2010 was 1,571,000 tonnes, up 9% year-over-year.)

Consultant Brian McClay in his monthly report is cautious about pulp markets as time goes on, due to decreased consumption of paper coupled in some global regions with oversupply. Softwood pulp prices will come under pressure during the summer “as the printing and writing paper business rationalization process and accelerating hardwood substitution, both demand and supply, weakens the softwood pulp market balance,” he wrote.

McClay expects hardwood pulp supply to move higher through the first half of the year on higher output from Indonesia and regular output from the Southern Hemisphere, where there is normally little maintenance downtime before mid-year. “As such, the downward pressure on hardwood prices should intensify through the middle part of the year,” he wrote.

Dissolving pulp, dissolving pulp. The drumbeat of dissolving pulp conversion projects or possible projects continues. For now, it is the hot market, but a longtime pulp agent cautioned that it “isn’t going to get that much bigger.”

In his monthly report, Brian McClay said Bahia Specialty Cellulose has reportedly recently advised its China customers that the list price in the second quarter list for its Viscose Staple Fiber (VSF)-grade pulp will increase to $2,600/tonne, up from $2,400/tonne in the first quarter and around $1,700/tonne in the fourth quarter. McClay’s monthly report contains a special section on dissolving pulp, “Transformed Paper Grade pulp as VSF-Grade Dissolving Pulp Extender.”

In addition to earlier-reported announcements, Södra Cell AB on Feb. 4 announced that it will convert its kraft pulp mill in Mörrum, Sweden, to a 170,000 tonnes/year dissolving pulp line, to be operational by the end of 2011. Södra does not currently produce dissolving pulp.

And in the next six months, Sappi Ltd. hopes to announce plans to expand its dissolving pulp capacity, according to a Feb. 10 report in Engineering News.

Meanwhile, on Feb. 7, Chinese textile company Fulida Group Holdings announced it had bought the Neucel Specialty Cellulose dissolving pulp mill in Port Alice, British Columbia. The company said it was driven by the demand for rayon fiber to supply its Chinese textile mills and by the growing global desire for cotton substitutes.

Thurso angle.
Starting March 1, at least some of the volume from Fortress Paper Ltd.’s Thurso, Quebec, 250,000 tonnes/year mill that has been sold in North America will instead be sold overseas. The mill has been producing northern bleached hardwood kraft (NBHK) pulp since its May 28 restart, but will convert to dissolving pulp production later this year.

Some NBHK buyers said an agent for the mill told them that none of the mill’s tonnage would be available in North America as of March 1, but a key Fortress executive contacted by Forestweb about the change said there might be only “some small shifts,” not “a large shift.” He noted that the company doesn’t have “much business in North America anyway” and he said North American buyers have been “pushing for reductions.” In contrast, mill nets have improved offshore and business has picked up, he said, singling out Asia in particular. “There are pockets overseas where there are opportunities,” he said.

He discounted the notion that Thurso was somehow already making some dissolving pulp or that the mill’s hardwood kraft pulp could be sold as a substitute for dissolving pulp, as softwood kraft pulp can be. “If we could do that, why would we be spending $150-$200 million to convert the mill?” he said.

The aforementioned executive said the mill is expected to go down in mid-August and restart by the second week of September as a dissolving pulp mill. “Everything is on track with the conversion,” he said, and the company has already contracted about 80% of the dissolving pulp output, to customers in Asia. As for reports that Fortress might be looking to buy the idled kraft mill in Prince Albert, Saskatchewan, he had no comment.

Whatever the NBHK quantities being shifted to overseas markets, the news was not well received by some North American buyers affected by the change, and they expect it to lead other domestic hardwood pulp suppliers to increase their prices. This would solidify North American hardwood pulp prices overall, narrowing what has been a wide gap between North American-produced hardwood pulp and BEKP.

The loss of Thurso pulp availability is “a total shock and surprise to me,” said one displeased buyer, commenting that the kraft pulp production was “supposed to run” through much of the year and that “customers loyal to them in a very sloppy hardwood market” were not given “even three weeks’ notice.” He said that had Thurso not started up last spring and made very good deals to find homes for its temporary kraft output, “the (market) prices wouldn’t have gone to $600 or $620 or whatever.” The buyer said the Thurso output has a high maple content that suits his needs, but added that he expects changes in some other producers’ operations to result in the availability of some extra NBHK for the domestic the market.

Middle East action. Several sources said demand and prices have increased in the Middle East in recent weeks.

“We have been extra busy…triple the files we normally have,” said a North American agent doing business in the region. “We have been scrambling to stay on top of business.”

Also he said shipments to Egypt have resumed and that ports are now operating normally, following more than two weeks during which vessels were kept in abeyance as the massive anti-government protests unfolded.

He described North American-produced BHKP prices as up about $10/tonne in the Middle East, to $640-$650/tonne CFR, with the price leaning more toward $650/tonne. “There is not a lot of hardwood” and eucalyptus pulp is needed to fill the void at a time when there appears be some to spare, he said, describing its price in the region as “$700/tonne tops.” In contrast, a few months ago, sizeable volumes of BEKP were sold into such markets as India, Pakistan, and Vietnam at prices in the low $600s/tonne, he said.

He said February NBSK prices are about $810/tonne, up $10/tonne. As for southern bleached softwood kraft (SBSK), he said there “are no bales any more” and that SBSK rolls are priced at $750/tonne.

Another such agent also said North American-produced BHKP prices in the Middle East have increased by $10/tonne; he put the current range as $650-$680/tonne.

An executive for a North American NBHK producer said the increase in recent weeks is $10-$15/tonne, to a price of around $680/tonne. “It seems like there is some real tightening over there,” he said. “They’re back now and seem to be back pretty strong.”

North America moves.
At week’s end, North American pulp players were digesting the news of Domtar Corp. and Canfor Pulp LP’s $30/tonne March 1 NBSK price hike announcements for North America. Buyer and agent sources mostly said they weren’t surprised that the number is $30/tonne, rather than $20/tonne. They cited strong demand, limited supply, and the ongoing push from China.

Sources seem to be taking Domtar’s announcement to $1,000/tonne with a grain of salt, saying the bulk of the North American business is being priced off of $960/tonne. “Really, $960 is the number,” said a North American agent. And a buyer said that even though the current list price of some tonnage is $970/tonne, some of this is nevertheless being marketed at $960/tonne.

A buyer for a specialty paper producer said NBSK producers have been telling him that their supplies are very tight and that the overall global market is very strong. Also, winter issues have taken their toll, including logistical problems delaying the arrival of rail cars, he said. U.S. buyers are stuck with paying the price resulting from Chinese demand and suppliers have told him that the Lunar New Year apparently didn’t cause much of a slowdown, he said.

He said two major NBSK suppliers have cautioned him that their supplies are very limited. He named one, a big supplier to China, that “has been telling me since January they are tight, saying, ‘Be careful, we’re very tight,’ and I keep hearing that,” he said. He named another one, known to have had production issues at some of its mills, that “got behind and oversold.” He added that these situations were not what he had expected in September and October, “when forecasters were saying the market would go down.”

As for softwood pulp spot prices, he said his increased by $10/tonne in February and now range from $770/tonne to $815/tonne, depending on the supplier. Some other sources have said spot prices are in the mid $700s or more and an agent said the range is $800-$830/tonne. Market pulp consultant Brian McClay wrote in his just-published monthly newsletter that spot prices in North America have reportedly jumped by at least $50/tonne over the past few weeks.

A U.S. buyer for a printing and writing papermaker commented that because of the strong Canadian currency, Canadian producers are more challenged than U.S. producers, but he expects the latter to raise their prices, as well. A $30/tonne increase will be “a difficult pill to swallow for a lot of printing and writing mills” in North America and it will likely be hard to make up for the increase, he said. “Prices are already high.”

Currently there is a larger-than-usual spread between NBSK and southern bleached softwood kraft (SBSK)--$960/tonne versus $910/tonne, even though extra SBSK bales continue to be as tight or tighter this month than last, with demand continuing to be strong along with permanently reduced output due to the conversions of SBSK mills to fluff pulp. “If you didn’t book ahead you are not going to get it,” said one of the buyers, describing the February spot price range as an unchanged $740-$770/tonne.

Various sources have noted that spot softwood pulp prices are rising in North America and that there isn’t all that much available. In his Feb. 8 research note, Deutsche Bank paper and forest products industry analyst said the (NBSK) price has risen by $30/tonne, to $740-$780/tonne, which he said narrows the discount off of list pricing to 21%, from 23% in mid-January, with pressure continuing into February. As for efforts to raise contract prices in March, he said much would depend on demand in China post-Chinese New Year and on the January pulp data.

Though sources generally say domestic spot prices of North American-produced hardwood pulp were unchanged in February, there are scattered reports of some increases--sources are quoting $10/tonne and $20/tonne--perhaps as suppliers bring up the low ends of their ranges. Various agents and spot buyers continue to report spot prices of as low as $600-$610-$620/tonne, sometimes up to $640/tonne and a few put the range as high as $650/tonne or so. As usual, freight is a factor in domestic hardwood pulp pricing. Also hardwood pulp appears to be tighter in the U.S. Midwest than in other parts of the continent.

In his newsletter, Brian McClay noted that the non-BEKP grades have gained some market share from competing fibers due to their relatively low price and that they are also getting a modest demand boost from U.S. integrated papermakers that are stocking up in advance of their upcoming pulp mill maintenance shuts. He added that, along with BEKP, domestic hardwood pulps are replacing some recovered fiber pulp supply, “whose quality continues to deteriorate, in U.S. tissue production for performance reasons.” He said this trend is likely to continue.

Echoing other BEKP sources, a seller of this pulp said $900/tonne has remained the market price in North America in recent months, despite the $10/tonne reduction, to $890/tonne, made by RISI Inc. in December. “Every month Fibria says ‘$900’ is money in the bank,” he said. “It just keeps coming.” He expects the next BEKP price hike to be in April, rather than in March.

There is less pressure on BEKP pricing this month than last, as the domestic hardwood pulp availability has tightened up, he said. “I think there’s still hardwood around, but (the market’s) not choking on it,” he said. “A month ago there was a lot more around.” He said the various small lots of “cheap fiber” available for the domestic market are now mostly gone, and large lots have been shipped overseas, thus cleaning up the market, “so the swings can be quite quick.”

For the week ending Feb. 5, FOEX Indexes Ltd. said the price of NBSK in the U.S. was unchanged week-over-week at $959.51/tonne. This followed three straight weeks in which the price fell by less than $1.00/tonne in each week. A week ago, FOEX recently said the price quotes remained in the $950-$970/tonne range, with $960/tonne “again the most common individual quote.”

In its Feb. 8 comments, FOEX said the firmness of the global bleached softwood kraft pulp (BSKP) market is “the decisive driver.” It said contract prices have been inching slightly lower over the past few weeks but it also said the prices “in the occasional spot sales” are reported to have moved up rather than down.

Europe steady. For the week ending Feb. 5, there was once again little change in the FOEX pricing for NBSK in Europe—down 31 cents/tonne, to $949.08/tonne. In the previous week, it went up by 2 cents/tonne and in the week before that by 27 cents/tonne, following respective 90 cents/tonne and $1.01/tonne decreases right before. In euros in the week ending Feb. 5, the price gained €3.79/tonne, to €696.27/tonne, reflecting the strengthening during the week of the U.S. dollar by 0.6% against the euro. In the previous three weeks, it fell by a total of €39.10/tonne, as the U.S. dollar weakened against the euro.

For the week ending Feb. 5, FOEX said the price in Europe of BHKP was $848.35/tonne, down 38 cents/tonne. This followed ups and downs of less than $1.00/tonne per week in each of the previous three weeks.

In its Feb. 8 comments, FOEX wrote that the combination of record-high global shipments and a decline in producers’ pulp inventories in December firmed the pulp markets in late January when the statistics, including softwood pulp producers’ stocks near all-time lows at 25 days of supply, became public knowledge.

But FOEX said the “other side of the coin” is that Western Europe was the only market where shipments in December were down against those for both November and December 2009. It noted that consumer softwood pulp inventories rose, albeit only moderately, and that European port stocks showed one of the biggest monthly increases on record. FOEX noted that in December, most of the consumer stock increase was for hardwood pulp. “And undoubtedly, the large hike in port stocks was the temporary destination for some of the record-high shipments.” FOEX cautioned that as supply increases continue in early 2011, “a potential weakening of the presently balanced market is lurking just (around) the corner.”

China consistent. The recent demand level from China seems likely to continue, wrote Brian McClay in his monthly report. China’s pulp buying “has stayed surprisingly robust in recent months as paper and board output there has continue to rise, surpassing 100 million tonnes in 2010, although the year-over-year advances have been slowing,” he wrote.

The “especially strong demand” for softwood pulp grades has been driven in part by significant tissue paper capacity expansions and by general restocking by traders and papermakers, he commented.

He noted that there has been a growing requirement for higher strength softwood pulps to make up for the lower quality of domestic pulp that has partly replaced imported BEKP since August, along with the “very lucrative new market for BSK that has developed in the Viscose Staple Fibre (VSF) business that is now approaching 50,000 tonnes per month.”

Softwood pulp, in particular, with its current tightness and medium-term shortage risks, has also benefitted from more speculative demand from commodities traders in China’s rising inflation and appreciating Yuan environment, McClay wrote.

For the week ending Feb. 5, FOEX Indexes Ltd. said the BHKP price in China dropped by 49 cents/tonne, to $742.55/tonne. This followed a 39 cents/tonne fall the week before. The price has been going up and down in recent weeks by less than $1.00/tonne.


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