Key softwood pulp producers announce Sept. 1 China price hike plans while hardwood pulp producers hope to avoid further price declines in Asia, Europe

Diane Keaton

LOS ANGELES , August 18, 2013 (IndustryIntel) – The global bleached softwood Kraft pulp (BSKP) market continues to be strong, with some price increases now being proposed, while bleached hardwood Kraft pulp (BHKP) prices are expected to weaken further in Asia and Europe by the end of August.

As expected, there are now some Sept. 1 BSKP price hike announcements for China. On August 15, Chile’s Cellulose Arauca y Constitution SA (Arauco) announced a US$10/tonne price increase for bleached radiata kraft pulp (BRKP), to $680/tonne (net).

This announcement was quickly followed by the news of Sept. 1 price hike plans for China from two producers of Canadian northern bleached softwood kraft (NBSK), Domtar Corp. and Mercer International Inc. Domtar on Aug. 15 announced that it is increasing its price $20/tonne—the new price wasn’t specified—while Mercer on Aug. 16 announced a new list price of $700/tonne, without specifying its previous price.

In recent months, some, but not all, NBSK sellers into China have been quoting net prices, rather than list prices. Most sources have been saying that July net prices for Canadian commodity NBSK were typically $660-$670/tonne. When list prices have been named, they mostly were $680/tonne for July. In the recent peak, in April, the China NBSK list price for Canadian and/or Scandinavian commodity NBSK was $700-$710/tonne, but it slipped $20-$30/tonne over the course of May/June and in some cases perhaps early in July.

For September, Arauco said its unbleached kraft pulp (UKP) price of $640/tonne (net) would be unchanged. Also it is not changing its Sept. 1 bleached eucalyptus kraft pulp (BEKP) price.

For August, Arauco had kept its BRKP price flat, at $670/tonne (net), while raising its UKP price $20/tonne, to $640/tonne (net). On July 25, an Arauco executive said the company had already fixed 100% of its August BRKP and UKP allocations for China at these prices.

BEKP prices, which have fallen in Asia and Europe in recent months, are generally expected to deteriorate further in August/September, although suppliers said they are trying to keep prices unchanged. (BEKP prices have not fallen in North America.) An agent who sells South American-produced BEKP commented that he doesn’t expect the market to pick up until October.

A major pulp buyer commented that the market still hasn’t seen the full brunt of the BEKP price decreases because the drops have been partially hidden by the real’s weakness. “The suppliers are compensated by currency,” he said, adding that he expects additional price declines in August/September.

On Aug. 16, The Wall Street Journal (WSJ) wrote that Brazil’s real has further to fall, after sliding on that date “to its weakest level against the dollar since February 2009, wrapping up a week in which the currency has lost nearly 5% of its value, amid anemic growth prospects, slowing exports and high inflation.”

The WSJ said Brazil's currency weakened to almost 2.39 reais per U.S. dollar in Aug. 16 trading, losing nearly 2% of its value on the day, despite the country's central bank trying to arrest some of the losses with heavy intervention in foreign-exchange markets.

Sources generally say that consumers’ pulp stocks are on the low side in China and statistics indicate that this is the case in Europe. The Europulp figures for July haven’t been released yet, but in June it said the woodpulp stocks in European ports rose to 1,024,341 tonnes from 986,027 tonnes in May, for an increase of 38,314 tonnes.

And a major shipper showed July stocks in selected Northern European ports going up to 540,000 tonnes from 436,000 tonnes in June. Adding in selected ports in China, Korea, Japan, and the Mediterranean, the shipper showed July port stocks at 1.617 million tonnes, up 2.9% from June’s 1.571 million tonnes.

(Subsequent to the posting of this report, Europulp on Aug. 19 released statistics showing that European woodpulp port stocks increased 86,365 tonnes in July over June, or 8.4%, to 1,110,706 tonnes, marking the second month in a row in which inventories surpassed 1 million tonnes. The July 2013 stocks declined 0.8%, or 9,335 tonnes, compared to 1,120,041 tonnes in July 2012.)

North America steady. The North America pulp market remains stable in August and some softwood pulp producers are talking up the possibility of a September price increase.

BSKP and BHKP list prices haven’t changed and spot prices are about the same.

NBSK is listed at $950/tonne and southern bleached softwood kraft (SBSK) is at $910/tonne.

For the week ending Aug. 10, FOEX Indexes Ltd. said the NBSK price in the U.S. gained $1.97/tonne, to $949.68/tonne. “North American pulp markets have stayed firm, especially in hardwood but also in softwood, and list prices keep showing a larger-than-normal gap to other pulp purchasing regions,” FOEX wrote in its Aug. 13 commentary.

Regarding the current $950/tonne NBSK list price for North America, which was announced to take effect June 1 (up $20/tonne), there have been ongoing comments from sources about temporary allowances being given in some cases before regular discounts, to influential buyers, or about transaction prices being limited when compared to those for hardwood pulp in North America.

As for North American-produced hardwood pulp, the list prices have also been holding. For June, some BHKP producers announced to $880/tonne, up $20/tonne, following $20/tonne increases in May, while maple-grade NBHK producer Verso Paper Corp. announced a June price of $870/tonne, also up $20/tonne; Verso did not announce for May.

The BEKP list price of $900/tonne was announced to take effect May 1; sources said that in some cases, the $30/tonne increase wasn’t completely implemented immediately and there were still comments in July about some pricing being $890/tonne or $895/tonne, as well as $900/tonne.

As previously reported, spot NBSK prices are still in the mid $600s/tonne, but several buyer sources reported August decreases of anywhere from $10-$30/tonne, with some deals made before the news of the pickup in Chinese demand. Spot NBHK prices are typically in the $630-$660/tonne range, though some are as low as $600/tonne and some are up to $670/tonne or so, essentially unchanged from July.

A buyer said in recent days that he has been receiving inquiries about spot SBSK from a few producers that also make fluff pulp. There seems to be more SBSK availability, he said; however, the August/July spot price range of $620-$660/tonne that he quoted is only a bit lower than that of NBSK.

The buyer noted that integrated printing and writing papermakers might have more SBSK to sell on the market if their paper output is down. And as recently reported, a market pulp consultant said fluff pulp suppliers have been chasing business and offering large discounts (in the mid-20 percentile range) to major buyers in North America and Europe.

The announced $960/tonne fluff pulp list price for May, up $40/tonne, was not reached, and instead has been around $940/tonne, up $20/tonne from April. So although fluff pulp costs more to produce, its current gross price remains lower than that of NBSK’s $950/tonne.

A buyer said some NBSK producers have been suggesting that they would push to raise their September list prices by $20-$30/tonne. “I wouldn’t be surprised if they tried but failed and tried for October,” he commented, noting that it wouldn’t be the first time in recent memory that suppliers “have tested the waters, then backed off.”

As to buyers’ complaint about the $90/tonne gap between the NBSK list prices in North America and Europe, a sales executive for a European NBSK producer said, “It’s not a net price—the gap doesn’t matter.” Globally, he added, “I don’t see a big gap.”

A major buyer shot back that it is “not true” that net prices around the world are all that similar. “Fundamentally there are price differences between the regions,” he said. “We are global buyers and we know.” Even factoring in transportation costs, there is still a differential, he said. And he complained that North American producers charge more in their home market than outside of it.

He said the $950/tonne NBSK price in North America meant that his company had to cut back on orders, but “We were able to get all the volume we wanted on the spot market…we got what we wanted and didn’t pay any additional.” He described the spot prices as being in the $650-$660/tonne range.

The combination of planned softwood pulp price increases, while the price of BEKP is still falling, “could trigger actions by buyers” in regard to their purchasing plans, he added.

Europe prospects. The softwood pulp market in Europe is holding steady in August, while the hardwood pulp market continues to be shaky.

Sources have been saying that the supply of European NBSK producers is generally snug, owing to various producers’ production problems but also to what has turned out to be reasonable demand in Europe during the Northern summer.

“Consumption has been very good for softwood globally. Even in Europe there has been no big production curtailment,” said a sales executive for a major European producer, adding that during August some smaller papermakers might not be producing.

Overall he described pulp supply and demand in Europe as in balance. “Customers are on holidays. They might be surprised when they come back,” he said. “Spot is non-existing in our case.”

He said demand “still seems to be quite OK in Europe and demand in Asia, particularly in China, is OK.” Nor does his company have extra volume for China, he added.

He said a price increase of $10-$20/tonne in China and Europe “sounds quite reasonable.”

Though printing and writing grades, especially coated mechanical, have been “very hard hit,” they are coming into their seasonally highest peak, he noted, adding, as have others, that there are some signs that Europe’s economy has improved slightly.

As for hardwood pulp, he noted that the price went down in Europe in July, adding, “I would not be surprised if it even changes more this month.”

Sources have generally said that the BEKP price dropped $20/tonne in July, to about $800/tonne in Northern Europe and to $780/tonne in Italy. One of the supplier sources said a few days ago that the price range was rather more a reflection of orders of large volumes compared to small volumes; he said the July price fell $10-$15/tonne. Also a few days ago, a buyer source said the July price fell $30/tonne to $780-$790/tonne. (“It depends on the buyer,” he said.) In recent days, an agent selling South American-produced BEKP, noting that the price had deteriorated over the summer months, described it as being down $10/tonne in July over June.

In the week ending Aug. 10, FOEX said the NBSK price in Europe increased 71 cents/tonne, to $857.89/tonne. In euros, the price dropped €7.72/tonne, to €641.51/tonne, as the euro strengthened during the week against the U.S. dollar by 1.3%.

FOEX said the BHKP price fell $2.32/tonne, to $793.65/tonne. When converted into euros, the strengthening of the common currency caused the BHKP index to lose €9.40/tonne, to €593.47/tonne, FOEX wrote in its Aug. 13 remarks, noting that the market has softened during the third quarter from the more balanced situation in the first half of the year.

“The softwood pulp market has stayed rather balanced through the summer globally in spite of the seasonal low, the continuing weakness of the graphic paper demand in the first half of 2013 and the increased supply from the integrated producers,” FOEX wrote.

FOEX said the recent modest re-weakening of the U.S. dollar against the euro has sent prices down more in euro terms than in U.S. dollar terms, and that the U.S. dollar price slippage “may well have been moderated” by the U.S. dollar weakness.

The euro turned lower against the U.S. dollar on Aug. 16 “as uncertainty over when the Federal Reserve will start to pull back its stimulus measures dented market sentiment,” Forex News reported on Aug. 18. It said the euro hit session lows of US$1.3312 before settling at US$1.3326, 0.14% lower for the day and paring back the week’s gains to 0.26%. Today the euro was at US$1.33365.

But the euro has strengthened overall recently, causing a market pulp consultant to remark, “Everyone was expecting the euro to lower and it has not. It’s certainly helping.”

Middle East signs. An agent selling into the Middle East and Mediterranean area said NBSK pricing is still flat, but that there is less availability, which he ascribed to production losses in some Scandinavian mills.

Business was slow in July, said, noting that this was in part because of Ramadan. The NBSK price was around “$665-$685, $670 more or less, depending on payment terms,” he said, adding that if there is a pickup in orders from some key countries in the region, such as Turkey, the softwood pulp price will have to jump, perhaps starting this week.

On the other hand, he said the short fiber situation “is exactly the opposite.” Among South American and European BEKP suppliers, he said, “Everybody has it, everybody is trying to get a bigger share of the market.”

Starting at the end of July/beginning of August, the BEKP price dropped to $630/tonne, from $670-$680/tonne, he said. Producers were lowering their prices by $5/tonne, then a few days later by $10/tonne in order to match competitors’ prices, he said. “Now it has to be $630, $620” to get a sale, he said.

He noted that demand for printing and writing paper has been slow in the region, as it has been in Europe. But what’s more of a concern than current pulp prices and seasonally slower demand in the region, he said, is that he is receiving so many calls these days from people trying to unload Chinese-produced cut-size paper into the Middle East, up from perhaps once a week to “one-two-three every day” now.

Meanwhile, the Cellulose du Maroc BEKP mill in Morocco remains idled and there are no indications that the current ownership plans to restart it, he said, adding, “The price of eucalyptus for them is not enough to keep it running.” In 2012, the mill produced 151,000 tonnes, a record, according to the company’s website.

China changes. A sales executive for a European NBSK producer said it wouldn’t be difficult to get a $20/tonne NBSK price hike in China, even though Arauco’s Sept. 1 BRKP price increase is for $10/tonne. “If we see the price goes up $10, we can go a little bit more,” he said. If the list price is hovering around $690-$700/tonne, it is good for the price increase to be either $10/tonne or $20/tonne, he said.

He added that price plans would also depend on the supply/demand balance, including what is revealed in inventory data that are expected to be released this week.

At least one Canadian NBSK producer turned away Chinese traders who wanted extra tonnage in July, “which at least eliminates the speculation factor,” said a sales executive for this producer, adding, “We don’t need to lower the price to sell because we don’t have a lot on hand because inventories are normal.”

Before Arauco made its price hike announcement for September, Chinese customers were saying they could accept “some increase on softwood, [but] hardwood is a different story,” said the supplier source, adding that buyers “don’t want the pulp price to go down, but they don’t want suppliers to go crazy like last year.”

While buyers might accept a $10/tonne increase, a $20/tonne increase would be aggressive, given the current economic situation, said the source, adding that $30/tonne would say, ‘You don’t have to buy.’

Also there is the question of how the low hardwood pulp prices would affect the softwood pulp situation, said the supplier, noting the lack of fundamental strength in the Chinese paper market--all kinds, not just the printing and writing sector--and in China’s economy. “Nobody will want to ship to China. They will ship to Europe and the U.S, which will help limit the amount to China,” the source said.

A market pulp consultant said a couple of NBSK suppliers waited until early August to make some sales in China at $670/tonne (net), up from the $660/tonne (net) price of more than a month earlier. Meanwhile, he said, “Traders, being traders, want to stock up [but] there’s not going to be a lot (available).”

Also he commented on the combination of hardwood pulp pricing going down while softwood pulp pricing is going up.

In China, printing and writing paper order inflow is expected to pick up seasonally, he noted. And he said some producers of paper-grade pulp have gone back to making dissolving pulp (DP), apparently because of a pickup in viscose demand.

A buyer for a global papermaker downplayed the current talk about an uptick in China demand. “China’s still not buying real heavily,” he said. “It depends on whether they are buying for production or buying for stock.” If it’s stock, he said, they might push back on prices, “then by November and December there will be fire sales.” And he commented about the drag on the market caused by the stocks of finished paper reportedly piling up in China.

Looking at BEKP imported into China, sellers are trying to keep pricing unchanged in August. Most sources in recent weeks said July range was $630-$650/tonne (net), mostly down about $20/tonne. There haven’t been many references to gross pricing in recent months, though some said it was around $680-$685/tonne in July. An agent selling into China said in recent days that his price dropped $10-$15/tonne in July, to a range of $685-$690/tonne, “one gross, one not, and discounts quite small,” and that he is trying to keep prices the same in August.

An agent in China said the spot price for Brazilian BEKP was around $645-$655/tonne, while for North American-produced NBHK it was about $610-$620/tonne.

He and some other sources have said that the unbleached kraft pulp (UKP) market in China is fairly snug, owing in part to the indefinite closure in April of the Solombalsky pulp mill in Russia, which doesn’t have much inventory left.

For the week ending Aug. 10, FOEX said the NBSK index in China was up $1.70t/onne, to $673.31/tonne. The BHKP index retreated $4.26/tonne, to $670.27/tonne.

In its Aug. 13 remarks, FOEX said the NBSK market in China is expected to pick up in late August/early September due to the approaching stronger season for paper and board, some recently reported easing of financing terms, and estimated low stock levels. FOEX noted that the negative price gap to BHKP during the second quarter supported the demand for BSKP.

Looking at BHKP, FOEX noted that the paper market in China continues to be weak and that prices have continued to slide, leading papermakers to seek ways to reduce their raw material costs.

“Prices of both local and imported BHKP have headed lower and remained under pressure more than softwood pulps in the early part of August, partially also due to the abnormal price differential between BEKP and commodity grade NBSKP,” FOEX wrote.

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