September pulp prices under challenge in North America, Europe, but China pricing and market fairly stable

LOS ANGELES , September 4, 2011 () – Pulp players in recent days have been looking for signs regarding September prices even as some August levels are not quite settled in certain circumstances.

Pulp prices continue to be under challenge in North America, where a few northern bleached softwood kraft (NBSK) producers made last-minute price reduction announcements for Sept. 1, while bleached hardwood kraft pulp (BHKP) producers are holding on to list prices that are far higher than spot levels.

In Europe, NBSK and bleached eucalyptus kraft pulp (BEKP) prices and volumes fell in August and some Italian customers have refused to accept even  those reduced prices, asking for further reductions.

On the other hand, the market in China, where earlier price reductions led to increased demand in August for both bleached softwood kraft pulp (BSKP), BEKP and other BHKP, appears to be fairly stable at the moment.

There is still more supply than demand of both BSKP and BHKP around the world, as indicated by various monthly statistics and also anecdotally. Buyers argue that this means prices should drop further yet. And pulp producers are banking on more than the usual fall maintenance downtime in Canada this fall as producers do their Pulp and Paper Green Transformation Program projects to decrease supply. Also sources said the coming months will see a fair amount of maintenance downtime in Brazil, and with some indicating that this will be a good time to reduce excess BEKP stocks.

North America developments. Some major NBSK suppliers on Aug. 31 announced that they were dropping their Sept. 1 list price in the U.S. and/or North America by US$20 per tonne, to $970/tonne. This follows the $30/tonne reduction in August, to $990/tonne. Those known to have made formal announcements for September were Canfor Pulp LP, West Fraser Timber Co., and Mercer International Inc.

There were also comments from several buyers that some NBSK is being priced for September at $960/tonne, but not being formally announced. A buyer said he had a firm $960/tonne price from a supplier. “I have it in writing,” he said, adding, “A lot of buyers are hurting right now. We have to be as aggressive as possible.”

(Not all major NBSK producers are known to have stated their September pricing, and a source noted that large producers that are also integrated as well as net pulp suppliers have a good incentive to keep pulp prices higher.)

There is also talk among sources of a price of $970/tonne less a $10/tonne temporary allowance before discounts. And a sales executive for a BHKP supplier said he is hearing up to $20 off of NBSK, depending on the deal, “so it’s a mess,” he said. (Sources have been reporting some temporary allowances off of NBSK prices in recent months, and there have been such reports regarding BEKP all year long.)

Canfor Pulp said at the time of its Sept. 1 NBSK announcement, “We believe the market warrants this moderate reduction” and that it is “good to have clarity on monthly pricing.” Given the $660/tonne price being floated around, Canfor Pulp’s announcement served “to put a stake in the ground,” said a market pulp consultant. And a buyer said the $20/tonne reduction might have been done “to avoid $30 down.”

Several North American buyers observed that suppliers had waited until the last minute to declare their price plans. “Inventories go down (and) they are quick to raise the price; they go up five days and they do nothing,” commented one of the buyers, in reference to the July “World 20” chemical market pulp producer statistics. “No one wants to be the first out of the gate this time.” Another buyer said on Aug. 30 that sellers had been refusing to talk about September. “Fights have begun and buyers are cutting back to bare bones,” he said.

One of the buyers said he expects all producers to be “competitive as necessary.” and that the list price could be “a little murky” for a couple of months.

NBSK spot prices remain low, with sources mostly reporting them in the mid-$700s/tonne range in recent weeks. One of the buyers said he is now hearing “lots” of offers at $740-$750/tonne, down from $740-$780/tonne toward the end of August, whereas the whole-month August average was in the $760-$780/tonne range, he said. Another buyer said the current spot price of prime NBSK is about $740/tonne, which he said is about $20-$30/tonne lower than at the beginning of August; he said more spot tonnage has become available than before. Yet another buyer said at the end of August that there was off-spec (high-dirt) NBSK tonnage available for $720/tonne, whereas, he said, this would have been priced just $10/tonne less than prime three months ago.

FOEX Indexes Ltd. said that for the week ending Aug. 27, the NBSK price in the U.S. lost the 6 cents/tonne it had gained the previous week, closing at $992.75/tonne. “Recent stickiness in exports outside North America has led to increased interest to sell more in the regional market,” FOEX wrote in its Aug. 30 notes. “As demand is down, however, price pressures continue with spot volumes readily available.” FOEX said the shifts toward fluff pulp from normal paper-grade pulp are expected to continue during the remainder of the year, thus reducing the offer of normal paper grades (of) southern pine pulp.

Looking at bleached hardwood kraft pulp (BHKP) in North America, producers have not announced price changes for September. Several sources noted that RISI Inc. dropped its August price by $20/tonne for BEKP, to $870/tonne, and by $30/tonne for northern bleached hardwood kraft (NBHK) and southern bleached hardwood kraft (SBHK), bringing those prices to $815/tonne for aspen and mixed grades of NBHK and $825/tonne for maple-grade NBHK and for SBHK. This was after RISI did not move July prices, much to the consternation of buyers with contracts tied to RISI and also causing concern among some suppliers because of the gap between the list price and spot prices, which in July were mainly in the mid-$600s/tonne and drifting lower.

The price in August “needed to go down at least” by $30/tonne, said a buyer, adding that he expects another $20-$30/tonne drop in September, given current conditions. And a North American pulp agent called the August “list” prices of $815/tonne and $825/tonne “a farce,” with the “real price $200 lower.” (As for NBSK, he said, “The real price is $800 or less.”

Papermaker sources continue to report ample spot NBHK tonnage available, with current spot prices still in the low $600s/tonne and a few offers in the high $500s.

A sales executive for a BEKP producer said August “was a sloppy month, let’s be honest,” and that “it’s hard not to” think that September will also be sloppy, given the July inventories increase. The lack of an official announcement for August created a challenge, he said, adding that RISI’s decision to keep July prices of NBHK and SBHK unchanged “was irritating for us.” Such “sloppy” markets cause contracted buyers to hold purchases to their minimum requirements so they can look to spot tonnage to fill out their needs, he and other sources have noted. As for the $870/tonne RISI price for August, he said, “I am not upset at that number.”

Looking at the U.S. market, a market pulp consultant also used similar language. “I think it’s very sloppy,” he said.

Some NBHK suppliers have not had extra tonnage available for re-sale, said a source who was in the market for such. He said suppliers appear to have the tonnes but are instead keeping them for domestic sales. Increased demand for NBHK by tissue producers as an alternative for BEKP has helped the NBHK supply situation, and BEKP pricing policies have helped keep NBHK prices from falling even further, he commented.

Also, a sales executive for a North American pulp producer said suppliers may be putting some of their inventory in storage in hopes of selling it for a higher price a few months from now to, say, China. He said he thinks many suppliers are doing this; he said there is no shortage of warehouse space available for such a purpose.

Responding to this notion, the market pulp consultant said the hope for higher prices in the fairly near future might be wishful thinking, and he observed that there are costs associated with holding rather than selling a product. He mentioned the school of thought that it is better to keep selling at least some of the extra tonnage, in order to avoid the possibility of being stuck with too much inventory if expectations prove wrong.

Separately, on Sept. 2, Fortress Paper Ltd. said the production of dissolving pulp at its mill in Thurso, Quebec, which is being converted from NBHK production, will be delayed until early November. The previous start-up date was August. Fortress said it has decided to “marginally” delay the shutdown of the mill required to make tie-ins and upgrades in connection with the conversion; it said this is because of equipment and other matters. “The deferment in the production of dissolving pulp is partially mitigated by the mill’s existing production of specialty pulp which yields a higher margin as compared to NBHK pulp” and which is manufactured to strict customer specifications, Fortress said in its statement.

Europe issues. Pulp players have recently become more focused on the Europe market than on the China market, commented a market pulp consultant. This is because prices dropped enough in China by August for customers to respond, and prices have stabilized, while in Europe, where many players have been on holiday and business has been seasonally slow, prices are under pressure.

Sources said the August NBSK price in northern Europe settled at $980/tonne, the level to which it began to drift in July, down $30/tonne.

On Sept. 4, a sales executive for an NBSK supplier said demand from Italy fell in August, with some customers insisting the price should be $950/tonne and still refusing to purchase at $980/tonne. And at least some August pricing in Italy was at $950/tonne, with Italian buyers reducing volumes if they couldn’t get the price down to that level.

An Italian agent said a tissue producer and a printing and writing paper producer managed to get their August NBSK price down to $950/tonne and their BEKP price to $770/tonne; he said that as of the last day of August, the tissue producer still had not closed a single deal as he held out for the lower prices. Some NBSK suppliers tried to hold the price at $980/tonne, sometimes costing them their entire monthly contracted tonnage, “and when they went back agreeing to the requested price, it was too late,” the agent said. He said that some suppliers apparently had agreed beforehand to a reduced price, which garnered them additional volume, indicating that there were more offers than demand, he said. “I’m expecting pressure to reduce the price further in September,” he added. (Note: this paragraph has been revised from the original posting, to include updated information.)

While the BEKP price in northern Europe was at the list price of $820/tonne set by Brazil’s Fibria Celulose SA--some tonnage may have been priced at $810/tonne--at least certain Italian BEKP buyers paid $770-$780/tonne.

“Europe is difficult for a whole bunch of reasons,” said a sales executive for a Brazilian BEKP producer. Customers in Italy “didn’t want to talk to anyone after they gave their number,” he said, adding, “In a not-tight market, selling pulp to Italians in August is always an interesting exercise.”

Looking at another nearby region, a North American agent selling pulp into the Middle East said the current spot price of softwood pulp there is in the $750-$800/tonne range and that the BEKP price is below $700/tonne, including around $660/tonne for large blocks. “Turkey is pretty bloody at the moment for guys who can’t ship to China,” he said. “Turkey is a free-for-all.” Another such agent said he has seen North American hardwood at $580/tonne in Turkey but that there is some selling at $610/tonne this month.

For September, buyers in Europe are expecting further decreases from $980/tonne for NBSK and $820/tonne for BEKP, but at this point in the month, it is too early to know what will happen. Some European players will not return from August holidays until closer to mid-September and business in Europe often doesn’t settle until the end of the month anyway.

The market pulp consultant commented that the September NBSK and BEKP prices throughout could end up being what the prices in Italy were in August, given how markets in Europe have historically moved. But also the pricing could depend on the euro, he added.

If the euro were to stay at US$1.45, which it hit on Aug. 26, said the source for the Canadian NBSK supplier, it wouldn’t be necessary to reduce pulp prices in Europe. (Currently it is at US$1.415.)

FOEX said that for the week ending Aug. 27, the NBSK price in Europe was $986.06/tonne, down $6.32/tonne. The euro price was €684.67/tonne, down €5.20/tonne. FOEX noted that the U.S. dollar weakened by 0.1% against euro week-over-week.

FOEX said that as the stocks of pulp rose in the European ports as well as at consuming mills, there were increased pressures on prices.

For BHKP, FOEX said the index was $816.92/tonne, down $2.71/tonne. The euro price was €567.23/tonne, down €2.71/tonne. FOEX said the slow intake by China and the weakness of the woodfree printing and writing sector both played a role in the softening of the BHKP market. And mainly in Europe, summer holidays had some impact, as well, FOEX said.

Utipulp said on Aug. 29 that in July over June, European woodpulp consumers’ stocks increased by 18,656 tonnes, or 2.7%, to 703,135 tonnes according to data released Aug. 29. Consumers had 21 days of supply, up from 20 days the previous two months. Even so, European consumers’ pulp stocks are still very much on the low side. July 2011, consumption dropped by 27,431 tonnes, or 2.7%, from a year ago, to 1,005,827 tonnes. Compared to June 2010, it was down slightly, by 8,935 tonnes, or 0.9%.

Paper in Europe. In major news last week, on Aug. 31, UPM-Kymmene Corp. said it plans to permanently remove 1.2 million tonnes/year of magazine paper capacity in Finland, Germany and France, and 110,000 tonnes/year of newsprint capacity in Germany, in conjunction with its acquisition of Myllykoski Oyj. Also it plans to temporarily close an uncoated woodfree paper machine in Germany and to streamline operations at the Pietarsaari pulp and paper mills in Finland.

In his statement about the closures, UPM President and CEO Jussi Pesonen said, “The paper industry faces severe challenges due to high raw material, energy and logistics costs, and considerable overcapacity. The profitability of our paper business is clearly below the level required to run long-term sustainable operations.” Pesonen said the planned restructuring would further strengthen the cost competitiveness of UPM’s paper operations and reduce the future need for major maintenance investments.

Separately, a European woodfree (commodity and specialty) papermaker is receiving “tremendous pressure to reduce prices down to a level that makes no sense to produce paper,” a European pulp agent said. “There are just two alternatives: to stop the production or to have a severe reduction on the pulp price,” he said.

China purchases. Suppliers continue to report stable conditions and prices in China, although customers, having come back into the market in early August, are not in as much of a hurry to close September business as they were a month ago. “China was the first market to move south and the first to stabilize,” commented a sales executive for a South American pulp producer.

Canadian NBSK producers are holding their September price in China at the August $830/tonne list. Sources have been saying that the August price ended up being in the $810-$830/tonne range, with some describing $810/tonne as the predominant price.

FOEX said that for the week ending Aug. 27, the NBSK price inched up by 35 cents/tonne, to $820.24/tonne. FOEX commented that in August, BSKP activity appeared to be picking up in China and that the price decline “appears to have stopped, least for the time being.”

In mid-August, Chilean bleached radiata kraft pulp (BRKP) producer Celulosa Arauco y Constitución SA (Arauco) said it would hold its September price at $820/tonne. A BRKP seller said on Sept. 1 that $820/tonne is “unquestionably” the price and that there is no pressure, with sales so far “reasonably healthy” but with many negotiations still under way. He said it was too early to tell whether sales would be stronger than August, when demand for BRKP was robust. A seller of similar pulp said Arauco’s “tough position” on pricing has helped keep the September price unchanged.

And as previously reported, Ilim Group in Russia raised its September BSKP price in China by $50/tonne, to $790/tonne cfr (port) and $760/tonne (border), after dropping its price a total of $180/tonne in preceding months.

Chinese customers purchased quite a bit of tonnage in August, including more softwood pulp than hardwood pulp, commented a market pulp consultant, adding that China imported “huge” quantities of BSKP in July, or 469,830 tonnes, just shy of 500,000 tonnes.

(As reported on Sept. 3, July pulp imports to China totalled 956,653 tonnes, down 3.6% from June, while rising by 15.8% year-over-year, according to China Customs Bureau statistics. The year-to-date total of 8,106,318 tonnes was 25.1% ahead of the first seven months of 2010. China imported 469,830 tonnes of BSKP in July, up by 9.9% from June and by 49.7% from July 2010; the cumulative total of 3,370,740 tonnes jumped by 53.7% from the year-ago figure. BHKP imports of 283,305 tonnes fell by 8.5% month-over-month but rose by 3.0% year-over-year, and the year-to-date total was 2,853,318 tonnes, up 5.9%.

The market pulp consultant said Chinese customers find the current prices to be acceptable and they are purchasing now to keep the status quo and perhaps to push for some further reduction. There is not enough traction in the market for prices to rise and the market could go quiet after purchases arrive in October and November, he said. He added that he is hearing about considerable roll pulp tonnage, at least some with low brightness, going to China from certain major southern U.S. producers.

As for spot NBSK prices, the consultant said late last week that some was priced as low as $750/tonne perhaps four weeks ago, but “not in the last 10 days.” A sales executive for a Canadian NBSK supplier said spot prices in China are at $810/tonne, while two weeks ago they were at $770/tonne. Though purchases have fallen from their levels when the market was stronger, the market has improved, he said, adding, “Inventories are low in China, so it won’t be long before they will have to pick up orders.”

Looking at BHKP in China, FOEX said the index fell once again, this time by $5.23/tonne, to $680.63/tonne. FOEX noted that news from the market suggests that pulp started moving better in August, “and while the prices for imported prime BEKP were still falling, the lowest-priced spot offers were less numerous” and that BCTMP (bleached chemi-thermomechanical pulp) prices “were actually on a rise.”

In recent weeks, sources have reported that major BEKP suppliers sold tonnage in China at net or spot prices in the mid-$600s/tonne. Though Brazilian producers have not officially changed their $730/tonne list price, set in July, the consultant said a major player had an effective list price in August of $680/tonne, which he said would put its net price in the $650-$660/tonne range.

A sales executive for a BEKP producer said that while there is a question whether the China market will hold up well into the fourth quarter, “end-users are placing orders and they plan to make paper.”

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