Pulp pricing continues to see gains in major markets in April; eucalyptus producers to push for US$30/tonne global price hike in May, but softwood pulp producers have not announced increases

Diane Keaton

LOS ANGELES , April 28, 2013 (Industry Intelligence Inc.) – Pulp producers continue to see some price gains, with April prices for some grades in some major markets yet to be determined.

There have been a few more price announcements for May, adding to some earlier announcements.

Pricing will be a major point of discussion during International Pulp Week from May 5-8 in Vancouver, British Columbia.

There have been no bleached softwood kraft pulp (BSKP) price hike announcements for May 1 and there are unlikely to be in China, given that Russia’s Ilim Group and Chile’s Celulosa Arauco y Constitución SA (Arauco) in recent days have announced unchanged prices for China.

On April 23, Arauco said its China prices would remain at US$690/tonne (net) for bleached radiata kraft pulp (BRKP) and $620/tonne (net) for unbleached kraft pulp (UKP). For April, Arauco had raised these prices by $20/tonne, while keeping its BEKP price unchanged.

But Arauco is planning a May 1 $30/tonne China increase for BEKP, to $750/tonne (list), the same as announced earlier by Brazil’s Fibria Celulose SA and then by Suzano Papel e Celulose SA. Fibria and Suzano plan global $30/tonne May 1 hikes, to $900/tonne in North America, $850/tonne in Europe, and $750/tonne in Asia.

On April 19, Ilim announced unchanged May 1 prices for China for BSKP, UKP, and bleached hardwood kraft pulp (BHKP), sources said. Ilim’s April prices for both softwood and hardwood pulps were reportedly up $20/tonne, bringing BSKP to $650/tonne DAF and $680/tonne CFR.

Ilim has begun commercial production at its new 720,000 tonnes/year softwood pulp line in Bratsk, Russia. On April 25, Ilim released a statement saying that that the first market pulp was produced on April 25 and that ramp-up to full production would continue over the next six months. The net gain at the mill will be 500,000 tonnes/year of BSKP; sources have said that the mill’s old 220,000 tonnes/year line was shut in February. Ilim said the majority of the new line’s output will be exported to China.

On April 26, Tembec Inc., which produces hardwood high-yield pulp, or bleached chemi-thermomechanical pulp (BCTMP), announced that it is raising its May 1 China price of high-freeness aspen 80-bright high-yield pulp to US$590/tonne. The announcement did not include Tembec’s low-freeness high-yield grades.

As previously reported, Domtar Corp. on April 18 announced a May 1 $40/tonne fluff pulp price hike, which will bring its pricing to $960/tonne for North America and Europe, up from the $920/tonne price that has been in place since September. International Paper Co. followed with a $40/tonne May 1 global hike on April 19. Another major fluff pulp producer is said to be planning a $30/tonne hike, but this has not been confirmed.

PPPC stats. On April 26, the Pulp and Paper Products Council (PPPC) released the March World 20 chemical market pulp statistics, showing that producer stocks decreased one day, to 35 days in March over February (standard calculation), with softwood pulp stocks down two days, to 29 days, and hardwood pulp stocks unchanged at 41 days.

Shipments edged up 0.6% year-over-year, to 3.909 million tonnes, on a 95% operating rate.

Analysts called the results everything from “disappointing” for hardwood pulp to “positive” and “neutral” overall.

BEKP angle. Sources continue to report tight BEKP supply due to production losses and shipping problems, along with scheduled maintenance downtime among various companies in South America.

In cases where there have been production as well as weather-related issues affecting loading and unloading, the delays involving one supplier have affected other suppliers using the same vessel.

Fibria underscored the tight conditions last week in the conference call following its release of quarterly financial results. The company said it is behind on shipments and still has not caught up from the relatively low stocks it had at the end of 2012. It made clear that it will push for the announced May price hike during May.

Fibria said in its April 23 results statement, “In addition to below-normal levels of producers’ inventories in early 2013 as a result of strong demand at the end of last year, a new maintenance downtime schedule reduced pulp production in the first months of the year, limiting the amount of pulp available for sale. In Brazil alone, about 100 thousand tons were taken off the market in 1Q13.”

Demand continues to be solid, Fibria said. “In China alone, about 2.5 million tons of new capacity for tissue and Printing and Writing papers came on-stream throughout 2012 and is gradually generating additional demand for market pulp in 2013,” Fibria said in the statement. “We expect more than 1.1 million tons of paper to be added to the Chinese market this year.”

A sales executive for a major South America BEKP producer said demand was good in the first quarter. “Volumes were normal to good, so there is no issue regarding volume,” he said. “To the contrary,” he said, “there have been complaints about the delays.”

Echoing the comments of others in recent months, he said he hasn’t yet seen an impact from the new 1.5 million tonnes/year Eldorado Brasil BEKP mill, which started up in November. “So far at least I have heard very little about it,” he said, noting that some pulp has arrived but at the same time, there is the cessation of the Jari Celulose SA mill, the conversion of Sappi Ltd.’s mill in Cloquet, Minnesota, and the various BEKP producers’ production losses and logistics issues.

As to when the Eldorado effect will occur, he noted that paper demand is a factor. Historically, price levels are much less dependent on startups than the overall economic situation, which is the driver for paper demand, he commented.

“The overall macroeconomic situation is not very robust, but it is a question of how robust it is compared to expectations, because if expectations are very low, a small improvement could change the psychology,” he said. And, he added, “Tissue is growing everywhere.”

North America market. As previously reported, northern bleached hardwood kraft (NBHK) buyers in North America have been reporting spot prices mostly in the $600-$650/tonne range, typically up $15-$30/tonne from March. In April there were just a few reports of prices still in the high $500s/tonne, generally in situations with lower freight costs.

But also some spot hardwood pulp prices are now higher than the prices of some contractual tonnage after subtracting the current hefty discounts. As a source noted, 25% off the announced April $840/tonne aspen/mixed NBHK price (up $20/tonne from March) is $630/tonne.

A regular spot NBHK buyer said he anticipates the May price to go up, too, though he isn’t guessing how much. This expectation “is because I hear how tight it is,” he said. But he doesn’t expect the situation to continue, given the additional BEKP capacity coming into the market this year. For now, he said, “I got everything I needed, but I’m a little proactive because of the shuts and I knew about Cloquet.” He said he has a source of several steady suppliers, so he’s not looking at locking in contracts.

Another spot NBHK buyer, who enjoys lower-end prices because of proximity to mills in the eastern part of North America, said he nevertheless has some supply concerns. “If something kept me up at night, it would be hardwood—how it will evolve,” he said. “Certainly we’ve lost supply over the years, but at least the guys here would choose domestic, not export (business).”

He added that his net BEKP price is only slightly more expensive now than his current NBSK price—both are in the low $700s/tonne—and he said that if mill conditions permit, there might be possibilities for instead using more BEKP.

There are mixed reports as to where the April NBSK price has settled in North America. Not a few say that in most quarters it reached the full announced $930/tonne, up $30/tonne. But in some cases, including that of a major tissue producer, sources said it is being stepped in.

Spot NBSK buyers have reported April prices mostly in the mid-$600s/tonne, typically up $10-$20/tonne. Some have increased to $680/tonne or so and some offers are still as low as around $620/tonne, but there are fewer of the latter this month. Nevertheless, said an NBSK sales executive, the low-end prices continue to be disruptive, causing him to lose business. He described his own spot price range as $650-$700/tonne.

Buyers of spot southern bleached softwood kraft (SBSK) report April prices of around $630-$640/tonne and as much as $670/tonne, amounting to increases of from zero to $20/tonne higher over March.

It has not been lost on analysts that spot prices in North America are still low compared to list prices, and that some April spot price increases are lower than those of list prices.

Still, an NBSK buyer noted that with contractual discounts, his net prices off of $930/tonne are in the $720-$755/tonne range, that is, above the spot price range reported by most.

For the week ending April 20, FOEX Indexes Ltd. said the gross NBSK price in the U.S. rose $2.90/tonne, to $919.84/tonne.

In its April 23 commentary, FOEX said that according to market sources, the downtime taken at some of the integrated mills in March appears to have recently increased U.S. market pulp demand. The new tissue machine startups also support market pulp shipments to and within North America because those machines need some start-up raw material inventory, FOEX noted.

“The relative tightness of the market has made it easier—but not easy—to pass on the price increases in this market than in Europe,” FOEX wrote. “On the other hand, the price gap between the North American and European markets has already grown uncomfortably wide and there will be increasing pressures to start narrowing the gap, one way or another,” FOEX wrote, noting that the current spread of about $75/tonne is more than twice the “natural” differential.

Separately, sales executives for some Western Canadian pulp producers that use Canadian National Railway (CN) have been complaining about rail shipping delays that they say have worsened in the last couple of months, causing pulp to back up. They said they can’t get enough rail cars and that CN blames such factors as the weather, derailments, and rock slides. “We got down to critical, especially in the winter,” said one of the sources. “You request cars, can’t plan,” he said.

Paper stats. Looking at the paper side, the PPPC North American printing and writing paper statistics for March showed that overall demand declines are continuing to accelerate, led by the weakness in office papers, noted RBC Capital Markets paper and forest product industry analyst Paul Quinn in an April 22 research note, who described the results as “negative.”

He noted that demand, down 6.7% year-over-year, has declined across all grades and that shipments dropped 5.3% year-over-year (made worse by one less shipping day this year), that the operating rate was just 88%, and that there was a buildup of inventories against the historical average drawdown in the month of March.

Separately, on April 25, Irving Paper Ltd. announced plans to increase the domestic price of its supercalendered (SC) paper grades by $50/ton, effective with all new and existing orders shipping on and after July 1. Before the week’s end, another such producer was also said to have followed.

A market pulp consultant said SC order backlogs have been good all year and that business is brisk for paper used for inserts and other promotional purposes. He said he expects business to be good seasonally, adding, “July through November will really hum.” Because of paper capacity closures, some paper buyers appear to be worried about their suppliers “and getting enough print time,” he added.

Europe expectations. Some sources have said that the BEKP list price in Europe is at or close to the earlier-announced $820/tonne, having reached about $800-$805-$810/tonne in March (Italy being on the lower end).

A sales executive for a major South American BEKP producer said his company will push for the $850/tonne price in May, up $30/tonne.

“At least in Europe if vessels are late, the customers have problems. That tells me the customers don’t have much stock and it’s not easy to find, to replace it,” he said.

Neither suppliers nor customers keep much stock on hand, with the general trend being to focus on working capital, he noted. He said the late-March/early April port strike in Chile will especially have an effect in Europe for April arrivals, while in Asia, the effect will be more in May, given the timing of shipping.

As for NBSK, sources generally have been saying that they expect the April price to settle in Northern Europe at $850/tonne, up $10/tonne for most business but still below the announced March price of $860/tonne, up $20/tonne.

For the week ending April 23, FOEX said the NBSK price in Europe rose 68 cents/tonne, to $844.11/tonne, and that the price in euros dropped €2.59/tonne, to €643.62/tonne, as the euro strengthened by 0.5% against the U.S. dollar from the previous week.

The BHKP price increased $2.22/tonne, to $809.41/tonne, while in euros, it fell €1.28/tonne, to €617.16/tonne, FOEX said.

(Today the euro was at US$1.30553, similar to the week-ago US$1.30596 and to April 14th’s US$1.30980, which rose from US$1.29257 on April 7.)

In its April 23 commentary, FOEX wrote that market pulp supply and demand remain in a good balance. “The strike and congestion in Chilean and also partly Brazilian ports do not show yet in delayed shipments but eventually will, although most of the impact will be seen in the Asian markets,” FOEX wrote.

FOEX said the BHKP market appears slightly tighter than softwood. “It is also more dependent on overseas imports than the BSKP market, where European consumption is slightly lower than in BHKP but regional supply more than twice the size of the regional supply in BHKP,” FOEX wrote.

“The combination of the threat of some disruptions in deliveries due to Latin American port problems or maintenance downtime and slightly better order books of graphic paper and tissue, the two major BHKP consuming sectors, have the buyers a bit on their toes,” FOEX wrote.

Separately, on April 24, the European Association of Graphic Paper Producers (Euro-Graph) released March statistics showing that shipments of European graphic papers fell 10.7% from March 2012, to 3.128 million tonnes. All sectors showed decreases, including newsprint, coated woodfree, uncoated woodfree SC-magazine, coated mechanical reels, and uncoated mechanical (improved and others) papers. March 2013 deliveries to Europe of 2.566 million tonnes dropped 9.4% from March 2012 and exports of 562,000 tonnes decreased 16.2%.

Mediterranean moves. Sources doing business in the Mediterranean/Middle East have been noting market strength in the region.

As reported a week ago, a pulp sales agent doing business in the Middle East said that for April, suppliers had offered $710/tonne for all grades, which he described as up at least $40/tonne from March, but he said buyers were resisting closing deals at that point in the month.

A few days ago a market pulp consultant said he is hearing NBSK $710-$720/tonne net prices in the Mediterranean, and NBHK at around $670-$680/tonne, with buyer stocks at normal to below normal levels.

Also in recent days another pulp sales agent said prices in the region “are going up for sure.” He said that in Turkey, his latest sales for NBSK were slightly over $700/tonne and that the price has stabilized.

New offers in Turkey for BHKP are around $670-$675/tonne, up from recent $660/tonne sales, and Iberian BEKP price levels are about $680-$685/tonne at the least, also up from $660/tonne deals, he said.

As for the ongoing shut at the Cellulose du Maroc (Celluma) BEKP mill in Kénitra, Morocco, which has a capacity of about 150,000 tonnes/year, he said, “Nobody knows when it is going to re-operate again.”

China reactions. Chinese pulp buyers continue to be stalling on closing business on some imported NBSK volumes in April, buying less than in March. A portion of the business is not expected to be concluded until the very end of the month.

The Russian and Chilean announcements of unchanged softwood pulp prices for May, which also will result in unchanged May NBSK prices, give NBSK buyers less urgency to act, as well.

The imported NBSK net price remains $680/tonne in April, which was reached in March. However, this is 4% off of a $710/tonne list price, thus within the typical discount range, which of late has mostly been 3%-5%. Sources said the local price has dropped some below the imported price, which also lessens the urgency to buy.

A North American pulp sales agent said the local market “maxed out at about $670-$680 early this month,” down about $10-$15/tonne, and that the May import price is therefore likely to hold or drop a little. Also he said there might not be much business done until after International Pulp Week in early May. “There’s not any big panic to load up again,” he said. But he said he doesn’t expect much of a price dip in the summer—maybe $10-$20/tonne “if it happens.”

A sales executive for a major BEKP supplier said that for April, his company is “holding firm” on the $720/tonne price, describing the March price as $700/tonne or $710/tonne, depending on the client. (Most sources have said the March price was $700/tonne, typically up $20-$30/tonne).

A buyer for a major Chinese papermaker said the April BEKP price depends on the supplier, with some concluding at $720/tonne and some below. “But the net price is still competitive” at $660-$680/tonne, he said, describing it as up “several dollars to $10” from March.

And he said BEKP customers in China do have the option of turning to lower-cost spot hardwood tonnage from producers in China and Southeast Asia, and that they have consequently reduced April BEKP orders compared to March. Also he said customers can buy aspen and birch pulp from North America “because the North American paper market is so bad.”

He commented that NBSK purchasing activity, too, has slowed in April, and he noted that the net prices of BEKP and NBSK are almost the same: $660-$680/tonne but mostly at $680/tonne for NBSK.

Customers generally appreciate the softwood pulp suppliers, he said, describing them “more reasonable,” than Brazilian BEKP suppliers, having been in the China market longer than the latter. Even though BEKP producers, given their current favorable supply situation, are pushing for higher prices, he said he hopes they will ease up in the interest of maintaining long-term business with customers.

He said he doubts that the announced $750/tonne BEKP price will go through because it is “too high.” The current level, too, “is hard for us to afford,” he said.

China paper markets are still quiet and there is downtime among printing and writing papermakers and among some tissue makers, including some newcomer major tissue producers that don’t yet have markets and had to take shuts after the Lunar New Year, he said.

The macro-economy “is not so good” and paper markets are still under pressure, he said. But he added that over the long run, as high-polluting mills are shut down, there will be more market share for modern manufacturers and their higher-quality products.

He said the list price needs to be below $700/tonne, and that a net price between $600-$650/tonne is “ideal” for both producers and papermakers. “We’re hoping the market can reach a turning point,” he said, but with the current tight supply, “It is hard to see at the moment.”

He said he expects supply to return to normal in a month or two as production and logistics problems are solved, as maintenance shuts come to an end, and as Eldorado becomes a presence in the market.

For the week ending April 20, FOEX said the NBSK price in China moved up by $2.46/tonne, to $698.07/tonne, while the BHKP price dropped 28 cents, to $693.81/tonne. This marks the second straight week in which the NBSK price has been higher than that of BHKP, as is “normal,” although the gap is still narrow.

FOEX noted in its April 23 remarks that increased shipments from Nordic countries and to a smaller extent from North America have covered the BSKP demand well and that in early 2013, imports also fell in response to the inventory draw-down by Chinese consumers and at trading houses.

As a result, sellers have had slow and limited success pushing through the earlier announced increases, “as sufficient volumes have continued to be available from a number of sources below the 700 dollar mark,” FOEX wrote.

FOEX noted the recent Chinese government announcement that the closures of small polluting paper mills alone would amount to just under 4 million tonnes this year. These closures mean less non-wood pulp-based paper and they most likely will improve what is currently, in many cases, the low capacity utilization rates of the more modern, market pulp consuming mills, FOEX wrote.

“Consequently, the needs for imported pulp are likely to go up in the course of the year, after having been below last year’s level in early 2013,” FOEX wrote.

Separately, as reported on April 26, China imported 1,480,523 tonnes of pulp in March 2013, declining 8.8% year-over-year but increasing 35.8% from February 2013, according to China Customs Bureau statistics. This included imports in March of 535,770 tonnes of BHKP and 595,081 tonnes of BSKP. In the first quarter of 2013, the imports totalled 3,929,082 tonnes, down 9.5% from the first three months of 2012.

Buckeye, GP. The week’s news included the April 24 announcement that Georgia-Pacific LLP (GP) plans to acquire Buckeye Technologies Inc, which produces high-end specialty dissolving pulps (DP) and nonwoven materials made from wood and cotton. Both companies’ boards of directors unanimously approved the agreement.

Some Industry Intel sources have noted that GP’s Leaf River fluff pulp mill in New Augusta, Mississippi, has been producing some dissolving pulp lately. (This has not been confirmed with GP.)

A sales executive with a DP competitor said GP has been making a grade of pulp that is between that of fluff and DP, marketing it into China for use in viscose production.

Regarding cotton linters pulp, he said linters are in short supply in the U.S. And a cotton linters buyer said in recent days that the price has shot up.

The DP source commented that the acquisition of Buckeye by the privately held GP would spell the end of Buckeye’s quarterly reports and investor presentations, which have provided information to the public.

And, he said, “Fluff pulp’s going to get tighter because there are conversions away from fluff pulp. That market’s probably got a good future.”

A market pulp consultant commented that there aren’t many fluff pulp producers to begin with, and now, with the Buckeye acquisition, there will be one fewer. Fluff pulp buyers “are really nervous about this,” he said.

China DP probe. The DP producer source said the viscose market in China has slowed, resulting in a month-over-month drop in commodity DP prices of about $20-$30/tonne, to around $930/tonne for softwood DP and $900/tonne for hardwood DP.

But the big issue remains the unfolding of China’s anti-dumping investigation into imports of dissolving, cotton linter and bamboo pulps, will unfold, he said.

The investigation is targeted at producers in Canada, the U.S., and Brazil, which are the top three importers into China, accounting for about 58% of the volume.

The source said he expects the preliminary determination to be completed after the (Northern) summer.

The Chinese DP producers who wanted the investigation are seeking a protected market, he commented. “The purpose of this is to reduce imports,” he said. “That’s what they want the outcome of this investigation to be.”

Meanwhile, he said, viscose producers in China are lobbying against the move because of concerns that their supply of DP would shrink. “It’s highly political—it’s who you know, so there’s a lot of uncertainty,” he said.

“If I look at it as a supplier, specialty customers have trouble going from one supplier to another,” he said. “It’s more difficult in China to change suppliers, and if they have to go through qualification, it could lead to some level of undersupply, it could lead to market tightness.”

The investigation could result in shifts in the market, with some DP suppliers having to sell elsewhere, he said, noting that two major non-Chinese viscose producers, Lenzing AG and Aditya Birla Group, would benefit because their DP costs would not increase as much as those of Chinese viscose producers.

BCTMP in China. In his recent Market Pulp Monthly report, market pulp consultant Brian McClay showed the March China prices as $560-$570/tonne for 80-bright aspen BCTMP and $525-$530/tonne for 75-bright softwood BCTMP. Some supplier sources have also told Industry Intel that those were the March prices.

A North American pulp sales agent said 75-bright softwood BCTMP is “stuck at $530.” He said a particular 80-bright aspen BCTMP producer has also recently offered the $530/tonne price, but that the prices of other such producers might be higher.

He and others have commented that there seems to be a BCTMP price band for China; he says it is $500 to $550/tonne (net). “If it goes above that, people stop buying, and if it goes below, people stop producing,” he said. “The huge amounts of hardwood (coming on stream) won’t help,” he said, but he noted that the closing of old capacity provides something of a balancing effect.

The market for softwood BCTMP in China is more stable than that of hardwood BCTMP, for which there is more of a substitution effect, he commented. Chinese domestic mechanical production is for hardwood, not softwood, which is an advantage for the latter, he said, noting that the growth in domestic hardwood BCTMP output has been leveraged to dampen that grade’s pricing. 

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