Global pulp prices unchanged to rising in May, depending on the grade and market, with hardwood pulp in tighter supply than softwood pulp

Diane Keaton

Diane Keaton

May 12, 2013 – Industry Intelligence Inc.

LOS ANGELES , May 12, 2013 () – (Industry Intel Editor’s Note: A weekly pulp wrap-up was posted on May 5 but due to a technical problem, it could not be seen online by some readers until the problem was fixed on May 7.)

Pulp markets are holding up so far in the second quarter.

North America is the strongest pulp market, Europe continues to be affected by economic weakness and secular printing and writing paper declines, and in Asia, overall demand is okay although the China slowdown is stalling some pricing in the region, particularly that of softwood pulp.

Buyers and sellers attending International Pulp Week, held May 5-8 in Vancouver, British Columbia, said pricing conditions appeared to be pretty much as they expected before heading to the gathering: fairly stable but not particularly robust.

“It’s a little weaker than I thought,” commented a pulp sales agent who had come to Vancouver. He said there are more tonnes available than he had expected, and he cited flattening Middle East prices heading into the seasonally slower Northern summer months.

An executive with an integrated producer said there were “no real surprises” in Vancouver, with the general feeling being that bleached hardwood kraft pulp (BHKP) pricing will hold up through the summer and then start to weaken.

There is also an expectation that bleached softwood kraft pulp (BSKP) prices might slip a bit during the summer, say, by about $20/tonne, before picking up steam again in the fall.

Softwood and hardwood pulp tonnage from new operations is expected to add to supply in the coming months. For now, BHKP is in tighter supply globally than BSKP.

And there are May 1 bleached eucalyptus kraft pulp (BEKP) announcements from Fibria Celulose SA and Suzano Papel e Celulose SA of Brazil of global $30/tonne price increases, with other BEKP producers also planning to follow any upward movement. In addition, some North American BHKP producers have made May 1 $20/tonne price hike announcements.

The only BSKP increase plan for May is for Europe, where some northern bleached softwood kraft (NBSK) pulp producers have announced one price while some have announced another.

Also for May 1, there are $40/tonne fluff pulp price hike announcements from North American producers Weyerhaeuser Co., Georgia-Pacific LLC, Domtar Corp., International Paper Co., and Resolute Forest Products Inc. Most are global announcements. The new list prices for North America and Europe are $960/tonne.

Some South American BEKP suppliers continue to say that they are well sold and have no pulp to spare. And sources comment that there is pressure to make money in cases where margins have been negative, in no small part because of escalated costs.

Countering reports from recent months, Ilim Group’s older 220,000 tonnes/year BSKP line at its Bratsk, Russia, mill, is said to have been running all along, rather than having been shut in late February in anticipation of the final work involved in bringing on the mill’s new 720,000 tonnes/year line--but the old line is expected to be shut down a few weeks from now. (None of this has been confirmed with Ilim.)

On April 25, Ilim released a statement saying that that the first market pulp was produced on that day and that ramp-up to full production would continue over the next six months, with the majority of the new line’s output to be exported to China. The new line is said to be running at half speed currently; sources said tonnage is expected to arrive in China around mid-June.

One of the reports coming out of Vancouver is that another port strike in Chile is expected in June, with workers continuing to press for improved working conditions, which was what triggered the strike that started in March at one port and spread to others.

In his just-released May Market Pulp Monthly report, market pulp consultant Brian McClay had an outlook that is positive for pulp producers.

“Most things considered, pulp prices for virtually all grades should continue to grind higher through the end of Q2, helped by more-than-usual NBSK downtime in June,” McClay wrote.

Then prices are likely to flatten out through the normally weaker Northern summer before reviving again once demand and output of printing and writing paper in most markets reflect the sector’s seasonally strongest period of the year, that is, in the autumn--with some additional help from a second-half acceleration in global economic activity, McClay wrote.

North America plans. Two North American BHKP producers are known to have announced $20/tonne May 1 price increases, on the heels of their and other domestic producers’ $20/tonne April 1 announcement. Resolute Forest Products Inc. announced a May 1 domestic increase for northern bleached hardwood kraft (NBHK) and southern bleached hardwood kraft (SBHK) pulp, to US$860/tonne. Alberta-Pacific Forest Industries Inc. (Al-Pac) announced a global $20/tonne price increase for NBHK pulp, also to $860/tonne for North America. Both produce aspen-grade NBHK.

BSKP producers have kept their May prices unchanged from their April prices of $930/tonne for NBSK and $890/tonne for southern bleached softwood kraft (SBSK), both up $30/tonne.

As previously reported, spot softwood and hardwood pulp prices over recent months for the most part have lagged contractual prices, despite the large-percentage contractual discounts. Spot hardwood pulp prices were mostly in the $600-$650/tonne range in April, and NBSK spot prices were mostly around $620-$680/tonne, with less on availability on the low end than in prior months.

For the week ending May 4, FOEX Indexes Ltd. said the NBSK price in the U.S. increased $3.39/tonne, to $922.26/tonne.

FOEX said the pulp price hikes along with other factors have spurred the printing and writing papers producers’ announcements for July 1 price hikes.

At least 10 North American producers of coated freesheet (CFS), coated groundwood (CGW), and uncoated groundwood (UCGW) printing and writing paper grades have announced domestic price increases starting with July shipments. The increases range from $30-$60/ton, according to the supplier and/or the grade.

They include Irving Paper Ltd., Port Hawkesbury Paper, NewPage Corp., UPM-Kymmene North America, Verso Paper Corp., Catalyst Paper Corp., Kruger Inc., West Linn Paper Co., Evergreen Packaging, and Appleton Coated LLC.

A market pulp consultant said these paper grades are well sold—he noted that uncoated freesheet (UFS) paper is not—and he said supercalendered (SC) grades are particularly tight. Papermakers “have passed the rough part,” seasonally speaking, he added.

In a May 10 research note, Deutsche Bank paper and forest products industry analyst Mark Wilde wrote that preliminary April UFS shipments dropped 0.7%, aided by one extra shipping day during 2013. Year-to-date shipment volumes are off 5.2%, he wrote.

While Boise Inc. announced the closure of two small machines and Wausau Paper is shuttering its Brainerd, Minnesota, mill,” more capacity must be withdrawn in order to maintain a balanced market,” Wilde wrote.

Europe outlook. For Europe in May, two major producers, Södra Cell AB and Stora Enso Oyj, announced a price of $890/tonne. But then Mercer International Inc. and Metsä Fibre Oy announced $870/tonne, with both saying in so many words that this was the more realistic number.

A sales executive for an NBSK producer observed that it is too early to say what buyers will do. And he noted that the ups and downs of the exchange rate are making “a huge difference” in pricing results.

The announced $870/tonne NBSK price still is $20/tonne higher than the $850/tonne price achieved in Northern Europe in April, which was up $10/tonne from March but still lagging $10/tonne from the announced March price of $860/tonne. In Italy the April price settled in the $845-$850/tonne range.

A pulp buyer for an integrated producer said the NBSK price rose $5-$10/tonne in April but some was still as low as $830-$835/tonne. Since his company is integrated, it likes higher pulp prices, he added. As for May, he commented that it would be easier for the price to reach $870/tonne than $890/tonne.

Regarding BEKP, the April price in Northern Europe was typically $810-$815/tonne, still short of the announced March price of $820/tonne, while in Italy in April it was typically $810/tonne, sources said. For May, BEKP producers announced an $850/tonne price.

An Italian pulp sales agent said Italian papermakers have perhaps two months’ worth of pulp stocks on hand, and can therefore skip a month. But he noted this would involve the risk that prices might rise by the time customers are ready to buy.

In his May Market Pulp Monthly report, Brian McClay said pulp demand in Europe was steady through April. But he expects it to weaken over the next few months as market-related downtime at paper mills, particularly for freesheet grades, starts to rise and as three paper machines are closed permanently during the second quarter.

With NBSK and BEKP net prices now very close, McClay said NBSK demand could benefit at the margin in the near-term.

For the week ending May 4, FOEX said the NBSK price in Europe edged up 72 cents/tonne, to $847.61/tonne. In euros, it dropped €5.16/tonne, to €646.34/tonne.

FOEX said the BHKP price in Europe moved up by just 4 cents/tonne, to $811.87/tonne. In euros it fell €5.44/tonne, to €619.09/tonne.

FOEX noted on May 7 that the euro had strengthened by 0.9% against the U.S. dollar from the previous week. While the recent dollar-weakness helps the price hikes in dollar-terms, it hurts the euro-values, “which showed in a clear, above 5 euro drop in both grades,” FOEX wrote in its May 7 commentary.

In recent days, though, the euro weakened against the dollar. Today it was at US$1.29743, slipping from US$1.31173 on May 5, when it had risen from US$1.30553 on April 28, and US$1.30596 on April 21.

On Friday the euro fell to one-month lows against the broadly stronger dollar after recent strong U.S. employment data sparked speculation that the Federal Reserve may scale back its quantitative easing program, wrote today. It said that on Friday, the euro hit session lows of US$1.2936, the lowest since April 5, before settling at 1.2990. Later today, the euro was a bit lower still.

In its comments, FOEX noted that the market BHKP capacity from Brazil, Chile, and Uruguay is increasing “in theory” by more than 4% in 2013 against 2012, though declines in mixed hardwood volumes in the U.S. market are compensating.

“In practice, practical supply grows less,” FOEX wrote, noting that volumes from Eldorado Brasil have been added slowly, that there has been reduced tonnage from PT. Tanjung Enim Lestari Pulp and Paper in Indonesia because of boiler problems, and that there is less available market pulp from Thailand this year than last because of further integration.

Mediterranean matters. The aforementioned Italian pulp sales agent noted that for Italy, much hinges these days on the behavior in China. “If China buys, Italy follows. If the Chinese don’t buy, Italy follows,” he said.

He said pulp players have been looking more at Turkey rather than Italy, given that Italy has “the highest discounts, the longest terms, it is a credit risk and a country risk—so why not go to Turkey?”

As for the Middle East, an agent doing business there expressed a similar sentiment about China’s influence, saying, “If China stops, everyone does.” He and a colleague said Chinese customers currently are “not really in the market” and are resisting pricing, but that eventually they would have to buy.

They said that for the past three weeks, buyers in the Mediterranean have been resisting pricing, which they see as eventually spreading around the region and to Pakistan and India.

(A market pulp consultant said spot prices in the Mediterranean had lost their momentum, but added, “Clearly hardwood is tighter than softwood.”)

One of the agents selling into the Middle East said the spot price of NBSK in the region amounts to an 18% discount off of the announced list price for Europe, that is, amounting to a price of $713/tonne when calculated off of an $870/tonne list price.

The BHKP price in the region is $690-$700/tonne but there is startup BEKP tonnage at $670/tonne, the agent said, adding that there is very little mixed hardwood pulp to be had but that Indonesian hardwood pulp is available.

Of note, the Cellulose du Maroc (Celluma) BEKP mill in Kénitra, Morocco, which has a capacity of about 150,000 tonnes/year, remains down.

China market. Several sources said Russia’s Ilim, which announced unchanged BSKP prices for May, had already lowered its BSKP price in China by $20/tonne during April. (This has not been confirmed with Ilim.) Its earlier-announced April price had been $650/tonne DAF and $680/tonne CFR.

Also for May, Celulosa Arauco y Constitución SA in Chile announced unchanged BSKP prices, of $690/tonne (net) for bleached radiata kraft pulp (BRKP) and $620/tonne (net) for unbleached kraft pulp (UKP).

And NBSK producers are keeping their May prices unchanged in China; the announced March price for commodity NBSK, carried over into April, was mostly $710/tonne; sources said the net price in both months was $680/tonne.

A sales executive for a non-NBSK supplier of BSKP into China said certain NBSK suppliers are offering discounts to get NBSK business.

But a sales executive for a major NBSK supplier into China said he is “not so convinced” the price will fall in the coming months in China. “I believe it could be stable,” he said, noting the effect on supply of spring pulp mill maintenance outages along with demand in China from new folding boxboard and tissue machines. In addition, these new paper machines should absorb the additional pulp coming into the market from new pulp capacity, he said.

Seasonally, Chinese customers will start to buy more pulp in August and September, with paperboard makers especially gearing up for packaging needs going into the Christmas holiday season, he said.

Though several major BEKP producers announced $30/tonne May 1 increases for China, to $750/tonne, there wasn’t much volume in April, and the price didn’t fully reach the earlier-announced $720/tonne, being more in the $710-$720/tonne range, sources said.

As for whether the $720/tonne price would be fully reached in May, a sales executive for a BHKP producer selling into China said, “Maybe.”

A sales executive for a major BSKP supplier to China said traders have three-and-one-half month’s worth of inventory on hand. They shouldn’t want to sell it off cheaply, though, because then they would have to replenish it at a higher price, he commented. (Hearing this estimated inventory level, another sales executive for a BSKP supplier that is also a longtime supplier to China scoffed that such estimates are “meaningless.”)

In his May Market Pulp Monthly report, Brian McClay said reports from the field and official statistics suggest that softwood pulp stocks in the hands of traders—he said they typically account for about two-thirds of the imported softwood pulp purchased--peaked earlier in the year and are now thought to be at normal to below-normal levels. Moreover, McClay said, small and medium-sized papermakers reportedly have very low stocks of purchased pulp.

He said China’s consumption of imported pulp should gradually increase over the next few months as paper and paperboard production recovers from the mainly market-related downtime that drove first quarter paper and board output down 2% from 2012.

“China’s underlying demand growth continues to eat away at the still considerable capacity/demand imbalance for printing and writing grades, so that there has been and continues to be some modest positive pricing traction for key grades although margins remain thin or negative at current price levels for paper and pulp,” McClay wrote.

For the week ending May 4, FOEX said the NBSK price in China edged up 35 cents/tonne, to U$694.29/tonne. The BHKP price inched up 64 cents/tonne, closing at $694.95/tonne.

This kept the hardwood pulp price higher than the softwood pulp price, though only by 66 cents/tonne. Meanwhile, Industry Intel sources have said that the net price for each in April was around $680/tonne.

McClay wrote that with virtually no gap between current net prices for BEK and NBSK in China, demand for NBSK should benefit at the margin, “especially since most of the incremental pulp demand is coming from new tissue machines that usually start up with a higher NBSK content than the 40% which is common in China.”

In its May 7 comments, FOEX said the current NBSK price levels “seem to be on hold, as May prices were announced unchanged by some producers, and even some downward price pressure was reported to prevail for these pulp grades.”

As for the BHKP announcement of a $750/tonne price for China this month, FOEX noted reports in the trade press of decreased demand for pulp in paper production because of the growing use of electronic media.

BCTMP business. In his May report, McClay said the China bleached chemi-thermomechanical pulp (BCTMP) prices were unchanged in April over March/February, at $560-$570/tonne for 80-bright aspen and $525-$530/tonne for 75-bright softwood.

“The demand is there,” said a sales executive for a BCTMP producer, commenting that China accounts for 50%-60% of global BCTMP demand.

Softwood BCTMP producers would like to put the price up, “But everyone’s nervous,” he said, noting also that Oji Paper Co. Ltd.’s Pan Pacific Forest Products Ltd.’s newish 200,000 tonnes/year softwood BCTMP operation in New Zealand has been adding to supply. He said the top achievable price for softwood BCTMP these days is about $550-$560/tonne. On the other hand, he said that when the BCTMP price gets too low and leads to a cutback of China BCTMP output, “then we fill the gap.”

The announced $590/tonne aspen BCTMP price for May, by several producers, “seems to have a chance,” he said, but he noted that it could further widen the spread between hardwood and softwood BCTMP. Hardwood BCTMP suppliers are “very bullish,” he said. “People are phoning for pulp.”

Currently there is an oversupply of paperboard in China because of new capacity, and the newer machines are running at a rate of only about 70%, he said, adding that China board makers are shipping excess tonnage to such markets as North America, Europe, and the Middle East.

Chinese board makers went from zero to a million tonnes/year, and now an additional 2 million tonnes/year are coming online, he said. This is 50% more than is needed, though the additional capacity does require more pulp, he commented.

Korea conditions. Pulp agents in South Korea said list prices in April rose $20/tonne, to $765/tonne for BRKP (this corrects a typographical error from the May 5 report) and to $755/tonne for SBSK, with NBSK unchanged at $785/tonne.

One of the agents said net prices were $710-$720/tonne for NBSK, $685-$695/tonne for BRKP, and $675-$685/tonne for SBSK.

In recent days, this agent said the April hardwood pulp list prices were as follows, in tonnes (net in parentheses): NBHK--$710 ($660-$670); BEKP--$700 ($645-$670); SBHK--$700 ($620-$650); Indonesian acacia--$700 ($640-$670); Indonesian mixed--$690 ($630-$660).

The sources said the April list prices included $680/tonne for 85-bright aspen BCTMP and $670/tonne for softwood BCTMP. The net price of prime-sheeted UKP was $620/tonne.

One of the sources said Korean papermakers have been consuming more BCTMP instead of BHKP as prices have widened between them. Major Korean papermaker Moorim Paper doubled its April BCTMP order volumes from all of its suppliers, he said. Despite price-increase efforts, paper prices haven’t kept up with the rising pulp prices, and there is talk of potential paper downtime, he said.

His colleague said paper capacity in Korea is almost double that of consumption, so papermakers have been exporting half of their output. Twice in the first quarter they raised their prices by 2%-3%, but it wasn’t enough to keep up with increased pulp prices, he said. And paper consumption will be seasonally slower in June/July/August, he noted.

Meanwhile, Hansol Paper Co. has just started up a thermal paper machine after converting it from a 200,000 tonnes/year printing and writing paper machine. The expected capacity of the converted machine is 100,000-150,000 tonnes/year, which would make Hansol the world’s third largest thermal paper producer, the source said, but he commented that this extra capacity could bring down thermal paper prices, making it a risky venture for Hansol.

Separately, he named another Korean papermaker that is a smaller operator and is unprofitable, sparking rumors that it could go bankrupt.

He said Korean pulp customers are buying normal volumes of BHKP and that he expects BEKP prices to rise $20/tonne in May, though not the announced $30/tonne. And he expects no change in BSKP prices, since producers haven’t announced otherwise.

BHKP is the major pulp purchased in Korea, accounting for 65%-70% of demand, with BSKP and BCTMP each accounting for 10%-15% and UKP the rest, he said. (Another such source said the total South Korea market amounts to 2.5 million tonnes/year, including roughly 1.5 million tonnes of BHKP and 500,000 tonnes of BSKP, with the rest of the demand being for other grades.)

The first source said it is easier to get BRKP than NBSK in the Korean market and that the higher NBSK price dampens demand for it. He noted there are some contractual arrangements by which customers who want BHKP are obligated to buy BSKP, as well. BSKP purchases are fully contracted in Korea, he added.

Another Korean pulp agent said the $30/tonne May BEKP price increase effort in Korea would hinge on what happens in the China market. “If they accept, we should accept,” he said. But he noted that there is “a big price gap” between the announced BEKP price and the price of other hardwood, and that Korean buyers are resisting and turning instead to Indonesian and North American hardwood.

He said the pulp price increases are hard for Korean papermakers to accept. With their hardwood pulp net price around $650/tonne while the price of paper is $750-$800/tonne, “it is hard to make money,” he said.

He said the shut of the Solombalsky UKP mill in Russia is having little impact in Korea and that the tonnage is easy to replace. But as customers in other regions search for different sources of UKP, supply to Korea could be reduced, he said.

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