Softwood and hardwood pulp price hike plans for April starting to gather some steam: i2live Paper Industry Forum

LOS ANGELES , March 23, 2011 () – Forestweb Editor's Note: Following is the transcript of today's Live! Paper Industry Forum conference call, hosted by Forestweb.

JR:
Welcome to our audio broadcast of Market Pulp Forum from Forestweb and Industry Intelligence. I’m Joyce Routson, Senior Insight Editor with Industry Intel. Some of you listened to our call last Tuesday with Diane Keaton, longtime pulp writer for Forestweb. You can get a reminder by registering at Live@IndustryIntel.com. Simply put Market Pulp Forum in the subject line. Today’s call is being held live but will also be transcribed and available on our service this evening. We are not taking questions on air today but we welcome e-mailed questions, so please send them to Live@IndustryIntel.com. Diane Keaton has been covering the pulp market for the past 11 years at Forestweb. Her network of sources is comprehensive and her reporting is widely followed by Forest products executives and the financial community. Diane, thank you for joining us today.

DK:
Thanks, Joyce. It’s good to be here and I’d like to thank the audience for spending time with us again and to watch Forestweb news on Industry Intelligence’s service for the latest on breaking market news.

JR:
Well, speaking of breaking news, I hear you’ve uncovered some big announcements on softwood pulp price increases since we spoke a week ago. What can you tell us so far?

DK:
Well, of course yesterday Domtar announced global April 1st softwood pulp price announcements. That was the first global announcement for softwood and that puts the list prices for northern bleached softwood kraft, or NBSK, at $1,020 for North America, $1,010 for Europe and $920/tonne, that’s the commodity grade, for China. So that’s a big development. A few major softwood pulp producers had announced $30/tonne April 1st price increases for China last week. That included Arauco for bleached radiata kraft pulp, or BRKP, to a net of $910/tonne. Arauco is keeping its unbleached pulp price unchanged at net $770 in China. And then also, Mercer and Botnia last week announced $30/tonne for NBSK in China to $920/tonne and Mercer is also going up $30/tonne across Asia. And the April radiata pulp price increase has gone through readily in China, sources are saying; one source said Arauco’s increase was accepted “fully and fast.” And then today, FOEX said the NBSK price in Europe last week was $970.15/tonne, up $6.54/tonne. That said, the price in the U.S. has fallen by $1.77/tonne to $984.36/tonne. FOEX did say, though, that the pulp market remains “relatively tight” in spite of the “not-too-positive paper consumption data.” The market has been waiting for April softwood pulp price hikes for North America and Europe, but there seemed to be a bit of hesitation to lead the price hike announcements for these regions, compared to in March when it appeared to be a given that softwood pulp prices were ready to go up worldwide. For April, some major suppliers appeared to be waiting for someone else to make the first move, which Domtar did yesterday. And sources said the hesitation mainly had to do with the challenges on the paper side in North America and Europe; prices that don’t cover rising costs, along with demand that’s not that robust and some suppliers have been making good money and don’t want to jeopardize that.

And they can make especially good money in China for the momen, as well. If the softwood pulp producers were to raise their prices in North America and Europe under these circumstances, they might see a drop off in demand, so that’s a concern. Now I’ve heard that some suppliers might be waiting to see the February World 20 Pulp Statistics before making their moves, and those statistics are due this week. By the way, I wanted to let people on this call know that at the end of our talk today I’ll be talking about the Korean market. It’s from information I receive once a month, so this call might go past the 30-minute mark by around the time we get to Korea.

JR:
Okay, thanks Diane. Can you tell us a little bit more about what you’re seeing on the supply side?

DK:
Well, briefly on the softwood supply side, Arauco’s pulp mill in Valdivia, Chile, came back up last Thursday. It had been down for 11 days due to drought conditions and it lost about 15,000 tonnes of softwood pulp production during that time. But this particular mill has the capacity to make that up, so it won’t be a long-term loss. And then also, Paper Excellence’s 235,000 tonnes/year NBSK mill in British Columbia is reportedly not yet able to produce fully bleached pulp. This follows that February 16th spill of pulp across the mill’s floor due to a ruptured tank, which caused a temporary shut of the mill. So the hesitation this time for North America and Europe concerns whether papermakers can absorb another increase. And we know that the margins are thin for papermakers and that they’ve been taking a hit due to rising prices of raw materials across the board, not just pulp.

JR:
What about hardwood pulp? How is that shaping up for April, price-wise?

DK:
We’ve heard that some other eucalyptus producers are supporting Fibria’s $30/tonne global price hike announcement for eucalyptus that was from early last week. And Fibria’s list prices will be $930/tonne for North America, $880 for Europe and $780 for Asia. So that will also be other Brazilian producers’ price, I’m sure. And the $30/tonne announcement last week by Chilean producer Arauco brings its eucalyptus price to $760/tonne. The source who was talking about Arauco’s quick acceptance of the radiata price said the same thing about the eucalyptus increase, that it was accepted “fully and fast.” And then there was another quick follow -up announcement of $30 for eucalyptus from Portugal’s producer, Altri, and that was for the European market, according to reports.

And on the North American hardwood side, as we reported yesterday, Domtar announced a $30/tonne increase globally for both softwood and hardwood pulp and so for North America, that will bring its April hardwood prices to $865/tonne for maple grade northern hardwood and $855/tonne for aspen and mixed grades of northern hardwood and then $860/tonne for southern bleached hardwood kraft. And some North American hardwood pulp producers for quite a few weeks have been reporting solid demand in overseas markets and one of the executives was saying, he said, “We’re getting all kinds of export offers,” and he said if there’s enough demand overseas to make the export net price comparable to domestic sales then North American prices will be able to rise. But if not, he said, that kind of effort would be doubtful. He said that there would be more light shed on the market this week when the international customers start making their April plans and their needs known.

They have a longer lead time than domestic. And this executive added that there are a lot more logistical issues with the overseas business like freight costs and container availability and all that. And then as for bleached hardwood kraft pulp in Europe, FOEX said the price last week moved up by 66 cents/tonne to $848.93 cents/tonne, but in Euros it went down by €15.09 to €600.80. And FOEX pointed out that the weakness of the U.S. Dollar has been supporting the price hike efforts, that’s no secret to the market. Last week the U.S. Dollar weakened by 2.6% against the Euro, which FOEX noted meant “a clear downward pull on the index in Euro terms.” And in other comments today, FOEX said the increasing production volumes in Asia have kept the hardwood pulp market on its toes, that at least so far the consumption growth has absorbed most of the volume. And then FOEX also noted that the widened price differential between softwood and hardwood pulp has been supporting the demand for bleached hardwood kraft pulp, which we’ve also been seeing for a while. And then back to eucalyptus, a source for a pulp agency selling into the Middle East said that eucalyptus buyers there are “scratching their heads,” they think $30 is a little much, but he said they’re still buying strongly. Fibria’s plan would be the first eucalyptus pulp price increase since last summer and it follows a decrease later last year. But as a softwood pulp source noted, Brazilians don’t have a track record of not succeeding when they announce a price increase. Putting that another way, Brazilians have a track record of implementing their price hike announcements. Deutsche… Oh, sorry, just a few more items.

JR:
Sorry, go ahead, Diane.

DK:
Deutsche Bank industry analyst Mark Wilde just returned from an investor trip to Latin America and he said in a March 21st research note that most of the company’s participants there were optimistic that the $30/tonne increase would succeed. And he said Fibria had noted that the increase had been under discussions with its top customers for some time, suggesting as Wilde put it, “That we shouldn’t see any significant resistance.” He said, “Nobody argued that the latest hikes represent the start of major price up cycle,” but he said, “Management for another pulp producer indicated that there could be another $30 increase for NBSK—that’s NBSK--in May.”

And a sales executive for a Brazilian eucalyptus producer told Forestweb in the last few days that he personally would have waited a month--that would be May, not April--for a price hike. But he said it’s a moot point now that Fibria’s announced—Fibria being the biggest producer of eucalyptus with 5.35 million tonnes/year of capacity. When it announces, everybody else typically follows. And the same sales executive said demand remains good in the U.S. and that his company has picked up some business because other producers were short on inventory. He said, “Our inventory is very, very low and others are even tighter,” and he said his company will exceed its sales expectations this quarter for both volume and prices. So that’s the hardwood side, Joyce.

JR:
So Diane, it sounds like there’s a pretty good chance of this price increase succeeding. You’ve been talking to buyers too, what are they saying?

DK:
Well, they’re not at all pleased, of course, by these developments on the softwood or the hardwood side and one of them was pointing out that paper demand has fallen in North America for two months running and he said buyers are seeing this in uncoated freesheet and coated and tissue. And he said buyers are accepting the March pulp prices but they’re cutting back on their orders and he said, “This is a weak March.” And a major buyer was telling me that the eucalyptus plan is “unreasonable and unacceptable,” those were his words. He said eucalyptus producers were just riding on the back of NBSK and they’re trying to keep the gap from widening. He said there’s still hardwood pulp available in North America and he pointed out that January hardwood pulp stocks were up to 40 days and he said he expects February stocks to go up by at least three days. And he said demand is just not that strong and “There is no justification for an increase.”

And as for the $30/tonne softwood price announcement, he said that would “kill demand completely,” and he said buyers need to resist the increase and it’s going to be a battle. And he also said Europeans should push back and he pointed out that the FOEX hardwood pulp price still has not reached the list price of $850/tonne, which has been the list price for quite a while. And as I said, it ended last week at $848.93/tonne. And then the NBSK price is just $970.15/tonne in Europe while the March list price is $980/tonne. So this buyer dismissed the currency considerations and said the fundamentals just don’t warrant a price increase in Europe. As we said, the eucalyptus pulp price in North America currently is listed at $900/tonne, but according to buyer information I’m getting, at least some pulp is still selling at $900 less $20, before discounts, which are averaging around 15% or going up to as much as 19%.

One of the buyers was saying he would fight the price increase hard and he pointed out that the gap between eucalyptus and other hardwood pulp pricing is more than $100/tonne. He described that as “huge.” And he also said his company has been able to replace a percentage of its eucalyptus furnish with northern bleached hardwood kraft and that it hopes to do more of this. But on the other hand, he said he sees no reason for softwood pulp prices not to increase, considering inventory levels, shipments to China and the lack of resistance to past increases. And as for resisting that softwood price hike, he said, “There’s not much to do, to be frank,” so I guess he’s feeling like he’s stuck with it. Then a sales executive for a eucalyptus producer was saying that some North American customers are describing the increase as a month early, but some are saying they’re not surprised, given the softwood pulp price announcements as well as the gap between hardwood and softwood pulp prices. An executive for a U.S. commodities papermaker said his company’s orders are still very strong but he pointed out that before long they’ll probably drop off, going into the slower summer months. So that’s the buyer comment.

JR:
You mentioned Europe. What else are you hearing about the pulp markets there, Diane?

DK:
Well, a major European NBSK supplier was saying a few days ago that his company would be waiting to see what transpires in Europe in the coming days before taking any pricing decision. He said, “It’s clear that if the global NBSK stocks go down and the Euro to U.S. Dollar exchange rate continues to slide,” he said, “Then I believe it is inevitable that there will be a further price increase in Europe.” And a North American NBSK supplier said he had received no real pushback from European buyers on the price increase in March and he said he thought the Europe versus U.S. Dollar situation has helped the price effort. And he said that the Europeans are grousing that suppliers’ prices are high enough already, but he counters that the strong Canadian dollar is helping suppliers.

And I checked on the currencies today and I saw that the Euro is US$1.42 and the Canadian Dollar is at US$1.02, so those are pretty strong. And this supplier isn’t expecting the February global pulp statistics to show an increase in producers’ softwood pulp stocks or much of an increase, anyway, from the 27 days in January. And he pointed out this is still a sellers’ market at that figure and he said his company is not building inventory. He said an April price hike effort would pose difficulty for non-integrated producers and “everything is going up,” as he put it. And he also said the paper downtime in Europe for coated and uncoated freesheet continues. He said lightweight coated in Europe is “okay” but not great. And he said it’s a good pulp market but the question is what the Western economies are going to do if manufacturers can’t afford to pay the rising costs of their raw materials, paper manufacturers. So that’s the Europe picture right now.

JR:
Let’s move from Europe to Asia. On the last call you spoke about how the pulp and paper markets were being affected by the earthquake in Japan. Do you have any further updates about what’s happening there?

DK:
A little bit. A lot of it at this point is still speculation about how the disaster in Japan will affect the market pulp industry. And a source for an international agent said the speculation is that it’ll be positive for the industry because the affected region in Japan has been exporting pulp to China. And he said there’s also speculation that the lack of printing and writing paper production in the affected region in Japan will help ease the Chinese paper over-capacity problem. And also, there’s speculation that Japanese-owned companies who deliver pulp to Japan from their mills elsewhere in the world might have more tonnes now for the global market, so that could be an issue. And a sales executive for a Brazilian eucalyptus kraft pulp producer said the Japanese situation creates uncertainty--which the market never likes, and he said, “A significant amount of paper inventory has been affected,” and he called the Japanese situation a ‘wild card.’

A Chinese pulp agent said the Japanese pulp market would be hard to assess, considering the paper machines in the regions are shut. And a South Korean agent said he’s seeing more paper inquiries from Japan and expects more transactions from Korea to Japan in order to make up for the shortage in Japanese domestic production. Then in its comments today, FOEX said the catastrophe in Japan “may well help Chinese paper export volumes,” and that it could also firm up the “here-to-not-too-tight hardwood pulp market in the region.” And it said the losses of Japanese pulp and paper production capacity raise the capacity utilization at other mills if power and logistics problems allow and “could well tighten the markets further.” We at Forestweb and Industry Intel are looking to put together a panel on how the situation in Japan will affect the forest products industry, so we invite you to send us topics you would like to see addressed. Just send them to Live@IndustryIntel.com.

JR:
So possibly some exports of paper from China to Japan. What else are you seeing about the market in China?

DK:
Well, I would say “tight” is the word, at least on the softwood pulp side. And just looking at notes from some of the people I’ve talked to, a pulp sales executive for a Canadian NBSK supplier was describing NBSK as extremely tight. And he said stocks in certain regions are too low and that buyers had been caught by the price increases, caught unaware. And a sales executive for a non-North American softwood pulp producer who sells directly to paper end-users in China said there’s no question the $30/tonne April softwood price hike is going through, and he said the China market is as tight as ever and “everyone” is still begging for more tonnage, which he doesn’t have to spare. And he said, “It is still being turned into paper and board, still being sold. It’s not going into inventory or in the pipeline.” He said that’s the case unless it’s all the way down the pipeline to the merchant level, but he said, “Certainly it is not being kept as pulp inventory.” And as for the recent report that Asia Pulp & Paper’s new Hainan Island paper mill is operating at only 60% of capacity due to market reasons, he commented that this mill didn’t even exist in the data a year ago and that 60% is, nevertheless, “still 600,000 tonnes of paper production,” and that this translates to demand for more softwood pulp. He said China is demanding more pulp than there is available. The supply situation is so backed up, he said this won’t change in the next few months and he said that would be the case even if everyone stops using softwood and if the rayon-related demand ceases and the situation in Japan ends up having a big impact on the industry.

And as for Japan, he said he doesn’t think anyone knows what impact there will be on pulp demand and how long it will last. And then a Chinese pulp agent that I spoke with said he expects the rest of the softwood pulp producers to follow the April price hike plan and he doesn’t expect to see buyer resistance. But unlike the supplier I just mentioned, this agent doesn’t think the volumes will be as strong and he said the rayon mills are now well stocked with NBSK and that they have four to five months’ worth of stocks. He said they’ve been buying in recent months at a pace of more or less 80,000 tonnes a month and that their actual use is around 60,000 tonnes a month. That’s a higher figure than anything I’ve heard, that 80,000. He says that some mills can substitute up to 25% of their dissolving pulp needs with softwood kraft pulp.

And as for reports that softwood kraft pulp can be converted to dissolving pulp at a cost of about $1,000/tonne, which I mentioned last week, he commented that it takes about one and a third tonnes of kraft pulp to make one tonne of dissolving pulp. So that means, he said, the effective price of $900/tonne for kraft pulp is $1,200/tonne and you add that to the $1,000/tonne converting costs and you’ve got $2,200/tonne, which is just a few hundred dollars a tonne less than the current price of dissolving pulp. He said that the April $30/tonne increase on softwood pulp could cause rayon-related demand to back off and he said that would mean more kraft pulp available on the paper side, which could affect the softwood kraft pulp market. And then meanwhile, of course he noted that the papermakers are struggling. Then looking at the China hardwood side, on the eucalyptus side a market pulp consultant said there are mixed reports that some eucalyptus producers are saying they’re having no problems getting orders while others said there are struggles. And FOEX today said the hardwood pulp price in China last week was $745.90/tonne, that’s up $1.95/tonne. FOEX noted in its comments that there will be substantial paper and board capacity increases in China again this year, but said if there is enough demand to run reasonably full, the Chinese intake of market pulp will increase this year from its 2010 volumes. The agent I talked to said he thinks the $30/tonne hike will go through in China because there’s such a big gap with the softwood pulp price and he said APRIL, the company APRIL in Indonesia, had successfully pushed through the $20 increase it was seeking this month and that this brought its prices of Indonesian mixed hardwood and acacia pulps to $690/tonne.

He said APRIL was trying to raise the prices of hardwood pulp produced at the Rizhao, China, mill by the U.S. dollar equivalent of about $30, but got only around $10 of it. That said, that’s still an increase, not just flat pricing. And he said the Rizhao RMB price had been around 5,000 to 5,100, depending on the customer, and he described the local hardwood pulp pricing in general as having gone up 50 to 100 RMBs. And he said the lower-end hardwood pulp market in China is completely stable because of its being on the lower end. He pointed out that the local prices are quite independent from what the foreign suppliers are asking and added that he hasn’t seen U.S.-produced softwood or hardwood being sold in China for a while. As for the price gap in China, that softwood/hardwood gap, well, it certainly is substantial in China, and it’s also existing around the world.

But the current spot prices in China of various kinds of hardwood pulp sold in China are still under $700/tonne, while imported net softwood pulp is netting well into the $800/tonne. So there’s been some speculation that a further increase in softwood pulp prices would lead to more substitution of hardwood pulp for softwood pulp. That Chinese agent said right now, uncoated woodfree papermakers typically use 15% softwood and they’re trying to get it to below 10% as long as the quality isn’t affected. But various sources I’ve talked to dismissed the notion that more substitution is possible. They said if that were going to happen, it would have happened already, since the price gap has been so large for so long. It’s been quite some time now. And for that matter, for the same reason, sources also dismissed the notion of substituting local hardwood pulp for the Brazilian eucalyptus pulp, which is traditionally more expensive than other hardwood pulp. So that’s a China overview.

JR:
That’s lots of good information, thanks. And finally, let’s go to Korea. I understand you have some new information about prices there.

DK:
Well, there’s somebody I hear from about once a month who provides some information to the market and so I’ll just reiterate some of what he passed on. He said the pulp market in Korea reflects the supply/demand scenario… Well, I’m saying it reflects the supply/demand scenario elsewhere around the world, but as we’ve been noting over the months, Korean papermakers have especially been struggling because of over-capacity and more of it coming on. They’re also struggling because of increasing costs. This agent said that Moorim Pulp & Paper’s new paper machine started operation for trial production for the end of February and that everything is on track as scheduled. Moorim is saying that commercial, uncoated woodfree paper will be available at the end of March or early April and that there will be coated woodfree paper at the end of April or early May.

The agent said Artone Paper’s Jinju mill, it’s small--it has coated woodfree and uncoated woodfree paper capacity of 57,000 tonnes a year--and he said it took 10 days of market downtime in February and has the same plan for March due to the oversupplied market. He said that higher oil and pulp prices have led Korean printing and writing papermakers to raise their export prices by $20 to $30/tonne for certain markets in February and they also plan to increase them by another $30/tonne, again, for March. And he said export demand in February was better than in January, thanks to the advantage from the U.S./ Europe anti-dumping duties against Chinese and Indonesian art paper.

He noted that with Moorim Pulp & Paper planning full production in May, other local papermakers have been struggling to secure their domestic share, their domestic market share. Then looking at pulp prices, the agent said the softwood pulp prices in South Korea went up by $20/tonne in February. That brought NBSK to $915, radiata to $910 and southern pine to $900. And he said the market was extremely tight and also that buyers couldn’t buy spot pulp and he added that the ratio for softwood pulp for printing and writing papers in Korea is about 15%. And then the hardwood pulp-pricing situation was another story; hardwood pulp producers tried to raise their prices but had no luck and he said the Brazilian eucalyptus price remained at $750/tonne. And he said major printing and writing paper companies stopped purchasing eucalyptus pulp again in February and instead bought more spot tonnage from North America, Indonesia and some from Japan. Of course this was before the disaster in Japan. He said mid-size companies had to buy eucalyptus and about 50% to 70% that was in contractual volumes anyway and he also said hardwood pulp supply from Indonesia has been stable and was a big help to Korean buyers. But aside from eucalyptus, he said the contractual net prices for other hardwood pulps ranged from between $685 to $700/tonne and the spot volumes were primarily in the $650 to $660/tonne range, saying this in January. We’ve all been hearing that BCTMP prices have been flat in major markets such as China, and Korea has also had unchanged BCTMP prices. The agent said that in February they were at $680/tonne for aspen, aspen 85-bright, and $670/tonne for softwood BCTMP.

And then he said supply has been increasing due to a surplus from APP’s mill in Meadow Lake, Saskatchewan, and from European and Canadian producers who lost market share in China due to the new APMP production in China. APMP, that stands for Alkaline Peroxide Mechanical Pulp, not something we hear about in the rest of the market, really. The agent said unbleached kraft pulp started to see a price hike in February after seven months of flat pricing, up $10/tonne and demand was good. And just looking briefly at the paper side a little bit, he said cartonboard demand from the domestic Korean market as well as overseas was still good, there was a flood of inquiries from overseas markets, the local cartonboard makers increased the February export prices by $20 to $30/tonne on the average.

And on containerboard he said the export price out of Korea went up by $20/tonne in February and that local linerboard manufacturers expected an additional increase in March. But he said they had to put off production due to a shortage of domestic recycled paper, which is their main raw material, and he said the price of recycled paper in the domestic market kept increasing, so the containerboard producers decided to take three to five days of downtime in order to lower recycled paper’s price and ease the shortage. On the kraft paper side, he said the local producers announced a March $100/tonne price increase for the export market as well as for the domestic market and he called this a huge raise, but said that the producers hadn’t previously achieved an increase, so I guess they were overdue. And then on the newsprint in South Korea, wrapping up South Korea, the second quarter price is set to go up by $50/tonne and the agent said local producers have suffered from higher costs of oil and old newsprint. And one of the Korean, South Korean newsprint makers, reduced its export volume by 30% because it switched some of its production to another paper grade. So that’s Korea for you, Joyce.

JR:
Well, I think we’ve covered the globe here, Diane. Do you have any other thoughts to sum up?

DK:
No, I think I’ve exhausted my knowledge for the day.

JR:
Well, that’s pretty exhaustive. That’s it for our Market Pulp Forum, thanks again to our listeners for joining us. Our next Pulp Forum will be March 29th at 2 p.m. Eastern. Please register at Live@IndustryIntel.com or check your e-mail for conference call details. And if you have any questions between now and then, send them to us at that same address. And finally, please mark your calendars for April 14th when Diane will be talking with Brian McClay about dissolving pulp. Thanks again and good-bye.

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