Global pulp markets continue to be slow going into year's end, particularly for softwood, with some pick-up expected in a few months
December 19, 2011
– Pulp markets around the world remain slow overall going into the year’s end, although there are pockets of activity as some buyers take advantage of rock-bottom prices.
December is slower than November, when China, in particular, snapped up the low-priced pulp. The hardwood pulp market, which has mostly seen a bottoming of prices, is stronger than the softwood pulp market.
“Hardwood’s not bad, softwood’s a little slower, softwood in China particularly…the paper business is not very good,” said a pulp agent for an international company. “There’s just not as much softwood demand as hardwood.”
A sales executive for a bleached softwood kraft pulp (BSKP) producer said the big concern is how much paper is actually being consumed in China, North America, and Europe. He added that downstream paper buyers, such as merchants, would have little incentive to buy for inventory under current oversupplied and weakened pricing conditions, when instead they could get it “just in time.”
That said, he expects the pulp market to remain “kind of locked in neutral,” with ongoing production and shipping. “It doesn’t have weakness written all over it” and producers will “tough it out,” he said, but he suggested that high-cost producers would be “watching the exchange rate every day.”
A sales executive for a Canadian northern bleached softwood kraft (NBSK) producer said that, given current prices, at least 1.5 million tonnes of high-cost production could come out, including in the first quarter. Any improvement in the market would be supply-driven, not demand-driven, he said, noting that demand in the U.S. and Europe continues to drop. “There’s got to be a correction on both sides, especially for high-cost producers,” he said.
With all that is happening in the global economy, the pulp overcapacity is not a surprise, he said. “If you are a high-cost producer, good luck to you. If you are low cost, you will weather the storm.”
He said the latter part of the first quarter would probably see some reduced production and that, weather permitting, the spring maintenance shuts of some lower-cost producers might be moved up earlier “and may take longer.” Also he expects announcements of some “indefinite” shuts here and there around the world, leading to permanent closures.
In the words of the agent, “We need two or three mills to go away or be more disciplined.”
Analysts are noting the softwood stress, as well. FOEX Indexes Ltd. said in its Dec. 13 comments that with the contractual price differential between BSKP and bleached hardwood kraft pulp (BHKP) hovering at or near $200/tonne over recent months, there is an economic impetus for buyers to continue substituting softwood pulp with hardwood pulp as well as for those who supply both grades to maximize their softwood production.
Not surprisingly, FOEX said, the demand is favoring hardwood pulps, which “shows already clearly in the pricing of spot volumes, where the differential is around $100/tonne,” it wrote.
“Softwood pulp prices remain under pressure,” wrote Deutsche Bank paper and forest products industry analyst Mark Wilde in a Dec. 12 research note. “In hardwood grades, market tone appears to have improved a bit after a sharp fall-off in prices over the past five months.” He said the global softwood pulp spot price level is in the $600-$650/tonne range, while hardwood pulp is in the $500-$550/tonne range.
In his most recent Market Pulp Monthly report, market pulp consultant Brian McClay, wrote, “Market fundamentals, sentiment and pricing for most softwood grades continue to deteriorate due to rising supplies after the end of maintenance downtime season and as more NBSK, both market and integrated, has been freed up by market-related paper downtime and paper machine closures, especially in Northern Europe.” In addition, some fluff pulp producers have been offering more paper-grade softwood pulp since spot prices for fluff pulp, which costs more to produce and ship, are similar to those for paper-grade pulp (in the low $600s/tonne), McClay said.
He put November global spot prices in the $600-$640/tonne range for softwood and the $500-$530/tonne range for hardwood.
Commenting that the announced market-related pulp downtime to date is “very modest” and only scheduled to begin this month, McClay said producers’ stocks should rise again throughout December.
“Most buyers will likely limit pulp purchases to minimum contracted levels in order to qualify for annual volume rebates and destock where possible, reflecting materially lower pulp consumption due to extensive paper downtime in the back half of the month, especially in Europe, North America, and Korea,” McClay wrote.
McClay expects list prices to continue to move lower through January 2012, especially for softwood grades. He said hardwood pulp prices in Europe and Asia should remain near current levels. He said positive pricing traction should only start to develop late in the first quarter of 2012 in China and later in the second quarter in North America and Europe.
Fibria follow-up. The announcements by bleached eucalyptus kraft pulp (BEKP) producer Fibria Cellulose SA of Brazil to raise December prices in Asia and Europe (to $730/tonne in Europe and $580/tonne in Asia) “have no doubt helped to stabilize hardwood pulp prices,” Vertical Research Partners paper and forest products industry analyst Chip Dillon wrote in a Dec. 12 research note.
“We know of no hardwood pulp price cuts to Asia for December, only generally flat prices,” Dillon said. And although softwood pulp prices in North America and Europe are declining in December, “we believe that the small-volume spot market (prices) in these regions are bottoming, as they have in China,” he wrote.
While many pulp players credit Fibria’s price-hike announcements for Europe and Asia with having helped to stabilize pricing, there is no shortage of buyers and others who remain incredulous about the move and its scope—up $50/tonne or more in a weak market.
“I still don’t understand the move…I don’t understand the level they are going for. It is too high,” said a sales executive for a Brazilian BEKP producer.
He said customers report that Fibria is being tougher about pricing, if not to the announced level, and that it may involve an effort to bring core customers back into the market and start the price recovery.
One of the comments he heard was that when a company like Fibria makes an announcement, it changes the discussion to whether the price will catch up rather than how much it will fall, he acknowledged.
North America numbers. Echoing others, a sales executive for a Canadian NBSK producer said the $890/tonne December list price for North America, a $30/tonne decrease, “is solid across the board.”
Market sources vary as to what they are seeing in NBSK spot prices, with some describing them as in the high $600s/tonne or in the low $700s/tonne, although all generally down $20-$30/tonne.
In his Dec. 12 comments, analyst Chip Dillon said NBSK spot prices have fallen by $20-$30/tonne since mid-November, to $650-$680/tonne, or roughly 25% below the list price.
“Given normal relationships, if North American spot prices stabilize near current levels, we would expect list prices to bottom near the $860/tonne (in perhaps February or March) we have been forecasting since September,” he wrote.
A sales executive for a Canadian NBSK producer described the market as “pretty quiet.” Various end-users in the U.S., especially coated freesheet “don’t have the cash” to buy pulp and they are not taking advantage of low prices, he said.
A large-scale U.S. buyer said both softwood and hardwood pulp markets appear to be a bit more stable and he added that there is slightly more demand as prices have come down. Also he said the reduced pulp production has had some effect. He wondered whether hardwood pulp prices have bottomed, and whether now is the time to stock up on tonnage. There is less effort “to try to sell tonnes on a panic basis,” he said, adding, “I think some of the curtailments helped a little.”
He said there could be some recovery in the market from now to the middle-to-end of the first quarter. But also he doesn’t expect price spikes in 2012, “not huge demand.”
Pulp suppliers appear to be trying “to spin a story that the market is at the bottom and going to go up,” said another U.S. pulp buyer. “I’m not sure that’s true,” he said, noting that paper mill closures are reducing pulp demand.
“I don’t think the market will be better this month or that it will be (better) next month,” he said. Softwood sellers aren’t making big pushes to unload additional tonnes, but they are available if he wants them, he said, as have others.
FOEX said that for the week ending Dec. 10, the NBSK price in the U.S. fell to the list price of $890/tonne, or down $6.92/tonne.
“The already seen and announced closures of paper capacity in North America are largely integrated units but still have some negative impact on market pulp demand, at least indirectly,” FOEX wrote in its Dec. 13 notes. It added that in the U.S., the large price differential between softwood and hardwood pulps keeps up the pressure to substitute with hardwood pulps. “Production costs are at levels which, in theory at least, would not allow much further price decline, taking into account the large discounts granted from the gross contract prices,” FOEX wrote.
Separately, as reported on Dec. 14, the Mackenzie, British Columbia, market pulp mill came back online in late November, having been shut since mid-October for longer-than-expected equipment-related purposes. The 235,000 tonnes/year mill, which produces NBSK, unbleached kraft pulp and sawdust pulp, still is not up to full speed, an industry source said. The mill is owned by Asia Pulp & Paper Co.’s (APP) Paper Excellence.
Europe business. A number of sources are commenting on the ramifications of the overcapacity and poor state of the printing and writing paper business in Europe. “I think there will be a wave of shuts,” said a North American pulp agent, echoing others.
Keeping the BHKP price unchanged in Europe could be a challenge because “the paper business is so terrible,” said a market pulp consultant.
A sales executive for a Brazilian BEKP producer said that at the beginning of the month, there was a considerable push by buyers for further price reductions, but that this push has eased as the days have gone by.
He said his company thinks prices have bottomed in Europe and that sales will conclude at the same level as in November, which he said was a gross price of $660-$670/tonne in the north and $550/tonne or lower in Italy.
Some customers have unexpectedly asked for additional tonnage, he said. He speculated that their thinking is that prices have bottomed or that they want to resist another producer’s price hike effort. He said he doubts that this changed behavior reflects improved paper markets. “So this is a very important time because it is coming from buyers and our customers,” he said.”
He added that due to the holiday schedules in Europe, his company must close business in the region by the end of this week, making this “a very, very short month.”
A sales executive for a Canadian NBSK producer said the December price in Northern Europe could drop from November’s $860-$870/tonne by $20-$30/tonne to “$840-ish,” and that buyers are pushing for $830-$840/tonne.
In the coming days, he said, he expects someone in Europe to make a statement for January pricing that would also be the December price.
A large-scale pulp buyer commented that the economic problems in Europe only add to the paper industry’s problems. “Even Germany relies on a lot of exports…if Germany is not growing, there is a real problem in the Eurozone outlook,” he said. “The outlook in Europe is poor.”
FOEX said that for the week ending Dec. 10, the NBSK price in Europe dropped to $846.38/tonne, down $6.95/tonne. In euros, it rose by 80 cents/tonne, to €632.38/tonne, as the euro weakened by 0.9% against the U.S. dollar.
On the BHKP side, the price in Europe fell by $1.05/tonne, to $650.18/tonne, and in euros it rose by €3.79/tonne, to €485.79/tonne.
Of note, Utipulp said European woodpulp consumers’ stocks decreased by 4,284 tonnes in November, or 0.7% compared to October, to 647,272 tonnes. Stocks remained at 19 days for the second straight month. November consumption fell year-over-year by 8.0%, to 959,378 tonnes.
Europulp said European woodpulp port stocks increased in November over October by 29,107 tonnes, or 2.1%, to an estimated 1,398,701 tonnes. Year-over-year, the November stocks were 38.8%, or 418,991 tonnes, higher.
China prices. Pulp players note that China has been purchasing considerable quantities this year, and that arrivals in ports have been large of late. Some sources said December has been slower and all sources expect January business to slow in advance of the Lunar New Year, which begins Jan. 23.
In a Dec. 14 research note, paper and forest products industry analyst Mark Kennedy of CIBC World Markets said China imported 1,310,000 million tonnes of pulp in November. “At current import rates China will import 14,250,000 tonnes of pulp in 2011,” he wrote, noting that in the first 11 months of 2010, China had imported 10,260,000 tonnes.
Consultant Brian McClay wrote in his recent Market Pulp Monthly report, “The volume of already-purchased imports arriving in China should be higher than recent levels through January at least, reflecting the shipping lag from the huge buying binge in late August/early September and from the recent surge in November,”
Noting that November was “a big shipping month,” a sales executive for a Canadian NBSK producer said the pulp would have to work through the system, but because Chinese users and traders are taking advantage of the very low prices, “Demand is great.” Ongoing increased production of hygiene papers, especially, is helping to drive demand, he said.
Meanwhile, starting early in the second week of January, there will be a considerable slowdown in China’s gross industrial production as people take time off before the Lunar New Year, he said. Business is slow now but is expected to be much stronger in the second quarter, so people want to get in their vacation time while they can, he said.
He described the markets for tissue and board as “quite OK” but noted that coated and uncoated freesheet papermakers have high inventory and that prices are under pressure. Once credit lines ease there will be some pickup reflecting pent-up demand, he said, which will lead to “a dramatic uptick.”
Meanwhile, China is “inundated with low-priced pulp from Scandinavia,” reflecting the weak paper business in Western Europe, he said. He described as “absolutely not sustainable” the reported $620/tonne prices for this tonnage. “Nobody on the planet can sell pulp at those prices,” he said, suggesting that certain suppliers need to get rid of their overhang before the end of the year. (Another such source said, “They can’t run at those levels forever.”) He said he is seeing Canadian NBSK in China at $650-$670/tonne net-net off of the $680/tonne net price.
Another such source said, “Anything below $700 is a problem, especially for coastal players in B.C.” He said the net price in December is $660/tonne off of the $680/tonne list, with spot pricing at “640-$650-$660.” He said his company expects to get its full contractual allocation in December, with about 50% in so far, and that November came in at 90%-95%. Some major non-Canadian BSKP suppliers apparently got their full December allocations, with a bleached radiata kraft pulp (BRKP) producer said to be at $650/tonne, he said.
Noting that BSKP and BEKP business in China is “all based on year-end rebates,” he said customers would buy bare minimums, keeping their inventories as low as possible. But he said he doesn’t think China is overstocked with softwood pulp, describing inventories as “average to a little high…It’s not all doom and gloom.”
A sales executive for a BSKP doing business in China said the pricing situation “is still extremely opaque…it depends on who you ask and no one’s telling the truth.” In contrast to when the market is rising, “everyone is trying to make it as unclear as possible,” he said, adding that if pricing is not already at the bottom, only currency factors will change it. But rather than pricing, what’s most important in the current circumstance is moving volume, he said, commenting that China has been erratic about placing orders. “China’s back, China’s closed. I don’t know if they’re back,” he quipped.
A considerable quantity of BEKP was sold in China in November at a net price of $500/tonne, said a market pulp consultant. “That was the price at which big deals were done,” he said. Now the net price has moved up to $530/tonne, off an effective list price of $550/tonne, he said.
Commenting on the BEKP price of $510-$520/tonne, a North American pulp agent said, “It’s better to buy it than produce it yourself.” Market players have said for some weeks now that that is the reason various Chinese BHKP mills have quit producing. The agent said the price in November was $510/tonne, which he thinks was the bottom, and that in December, “It might have moved up $10.”
He said softwood pulp is moving slowly in December, with more softwood pulp in Chinese ports than hardwood pulp, following “huge volumes” of softwood pulp business concluded in November, including many spot deals at $630-$650/tonne.
A sales executive for a Brazilian BEKP producer said large quantities were negotiated in November in China for “as low as $520-$510-$500,” but that December’s gross level is $550/tonne, with the net price at $535/tonne “or close to that.” He expects the January price to stay at that level and then possibly recover after the Lunar New Year.
He attributed the December price improvement not to Fibria’s announcement but rather to an easing of credit restrictions, thus making it possible for mid- and smaller-sized customers in need of pulp to proceed with making purchases. Customers never did stop buying from his company, he said, adding, “It was only a matter of pricing. It seems they are willing to pay a higher price.” Pricing has already bottomed and “now is the time to recover to a level where we can survive,” he said.
In his Dec. 12 research note, industry analyst Chip Dillon wrote that there are more signs of an early 2012 bottom. In the week ending Dec. 9, the BEKP resale prices in China increased by $6/tonne, or by 1%, to $531/tonne, and over the past month, the resale NBSK prices are down by just $10/tonne, he wrote. He noted that except for a 2% bounce in early August, BEKP resale prices had fallen continuously by a total 29% since mid-April, with most of the decline occurring in the six weeks between mid-September and the end of October.
FOEX said that for the week ending Dec. 10, the NBSK price in China increased by 45 cents, to $669.62/tonne. This was the first upward move since the price began dropping precipitously in late September.
FOEX said the good activity in November in China and in some other Asian countries helped move the FOEX index for NBSK marginally higher. But FOEX noted also that purchases are typically good in China in November and then slow down in December/early January before the Chinese New Year holiday period. In addition to seasonal factors, the low price levels were probably one of the key drivers for the activity in November, FOEX said.
As for the hardwood pulp side, FOEX noted that part of the local hardwood pulp capacity is currently being converted from paper grades to dissolving pulp (DP) by Sun Paper and by Lee & Man Paper Manufacturing Ltd. “This, lower stocks and low prices for hardwood pulp helped to boost the sales of BHKP market pulp in China in November,” FOEX wrote, adding that news reports indicated that the December shipments have not been as good. “Fibria’s price increase announcement, the disappearance of the lowest spot offers and the threat of closures of non-wood pulp based paper capacity in China were not enough to turn the prices to a rise, at least not yet,” FOEX wrote.
In his monthly report, Brian McClay wrote that buyers should be less motivated to place orders “since many contract rebates will reset to zero at year-end and because actual pulp consumption will be reduced considerably by extensive paper and paperboard machine downtime around the Lunar New Year break.”
He wrote, “Even when China starts to increase its pulp buying on a more sustained basis as early as February 2012, any real pulp pricing traction will only be generated if that demand push is combined with reduce pulp supply via significant market-related downtime and/or the closure for an extended period of some market pulp supply.”
McClay added that of a few smaller Chinese mills that were making the transition to becoming commodity DP swing mills, all are now back to making paper grade pulp, given that DP prices have been driven down toward $1,000/tonne from their high of as much as $2,700/tonne in April.