Commodity dissolving pulp prices show further weakening, reflecting seasonal factors and new capacity, with another capacity conversion plan to come

Diane Keaton

LOS ANGELES , December 11, 2011 (Industry Intelligence) – Commodity dissolving pulp (DP) prices are continuing downward and paper and forest products industry analyst Paul Quinn of RBC Capital Markets has lowered his forecast for next year.

In a Dec. 5 research note, Quinn wrote that commodity DP prices are “in rapid retreat at ~$1,100/mt (down 31% since the beginning of October) as ~21% more capacity has come online in the past six weeks.”

A sales executive for a North American DP producer said that the commodity price had gone down to $1,050/tonne the previous week, then back to $1,100/tonne in this past week. The $50/tonne jump reflected the viscose market being at a seasonal low, with mills not buying as much DP, he said, noting that the market had started to come down a month ago because of demand weakness and seasonality. The price could jump again, “especially with China such a big part of the picture,” making decisions quickly, all of which leads to volatility in pricing, he said.

Quinn said some higher-cost Chinese capacity such as Hunan Juntai Pulp & Paper have temporarily swung back out of DP at the ~$1,150/tonne level. But he said the recent large capacity additions could drive prices as low as $900/tonne before the market re-balances.

“Given the supply outlook, and with current prices already below our commodity DP trend forecast of $1,250/mt, we have lowered our 2012 commodity DP price assumption from $1,400/mt to $1,150/mt,” Quinn wrote.

(As reported previously, according to paper and forest products industry analyst Richard Kelertas of Dundee Capital Markets, Hunan Juntai Pulp & Paper, a subsidiary of Yueyang Paper, started trial runs on Oct. 28 at its Hunan mill (300,000 tonnes/year of DP), with commercial production anticipated by the end of November, and it is expected to have an annual DP capacity of 300,000 tonnes. It is one of three pulp and paper companies in China that have completed their DP projects, with a combined annual capacity of 620,000 tonnes/year.)

Separately, Sweden’s Södra Cell AB said in a Dec. 8 announcement that it hopes to identify before the fourth quarter of 2012 which of its lines is most suitable for another DP conversion and that its budget allows for another such project. Line 1 at its Mörrum, Sweden, pulp mill, converted to produce DP (170,000 tonnes/year) is set to begin production this month.

“Textile pulp offers major benefits in terms of quality, sustainability and ecology, and we believe we will see good growth in years to come,” the company said.

Total capacity at the Mörrum mill is 425,000 tonnes/year of hardwood and softwood pulp.

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