Pulp market heading into New Year with little change in pricing expected for January around world, amid quiet paper markets

Diane Keaton

LOS ANGELES , December 25, 2011 (Industry Intelligence) – The pre-holiday quiet of late December was punctuated by some softwood pulp price increase announcements for January. But pulp players contacted in recent days don’t expect much activity or change in prices.

As reported, on Dec. 20, Stora Enso Oyj of Finland announced that it is increasing its northern bleached softwood kraft pulp (NBSK) prices to US$850 per tonne in Europe and $670/tonne in China. Later in the week two other NBSK producers, Oy Metsä-Botnia AB of Finland and Canfor Pulp LP of Canada, made the same announcement for Europe. Also Canfor Pulp said it was keeping its list price of NBSK unchanged in Asia (its list price of reinforcing NBSK in China is $690/tonne).

On Dec. 20, Chile’s Celulosa Arauco y Constitución SA (Arauco) announced that for Jan. 1 in China, its bleached radiata kraft pulp (BRKP) price will be $660 per tonne net, an increase of $10/tonne, and that its list price of bleached eucalyptus kraft pulp (BEKP) will be $580/tonne, up from a December net price of $530/tonne. Its price of unbleached kraft pulp (UKP) will be $600/tonne net, unchanged from final December prices.

As for the softwood pulp increase plans, “I don’t think they’re going to get them,” said a market pulp consultant. But he said that such announcements can help stop further deterioration—he likened them to the Fibria Celulose SA’s price hike announcements for December—and he said they remind buyers that the market “will turn sometime.” (Fibria, of Brazil, announced December prices of $730/tonne in Europe and $580/tonne in Asia.)

He added, “If Stora Enso really wanted to make a difference, it would have said it was closing a mill.” Meanwhile, he noted, “People are getting their working capital down to zero, European consumption is down and the (stocks in) ports are high, so there’s no rush.”

Some sales executives for producers have been reluctant to say when they think the global pulp market will revive, although the general consensus is that it won’t be before the end of the first quarter or the beginning of the second quarter. They also note that the market will be quieter until after Chinese customers return from Lunar New Year festivities; the Lunar New Year begins Jan. 23 but industrial activity starts slowing ahead of that time.

As reported on Dec. 22, in November, World 20 chemical market pulp producer stocks fell by one day, to 38 days (standard calculation), compared to October, according to statistics released that day by the Pulp and Paper Products Council (PPPC). Shipments totaled 3.531 million tonnes, on a shipment-to-capacity ratio of 92%, and up 10.4% from October, when the ratio was a weak 81%. The November results were largely influenced by strong shipments to China, especially of low-priced BEKP.

Although pulp producers’ November inventories typically edge up, rather than fall, paper and forest products industry analysts downplayed the results because pulp producers’ stocks remain high and paper markets in key regions remain anemic and oversupplied, among other challenges.

Sources have noted that the recent strengthening of the U.S. dollar has alleviated some pressure for higher-cost producers in Canada and Europe that otherwise might have been forced to take market-related downtime by now. “Some Chinese producers have high-cost capacity that could be at risk…but many appear willing to sell at low prices to generate cash,” wrote Citi Investment Research analyst Juan Tavarez, on Dec. 19, mentioning Asia Pulp & Paper Co. (APP), which has a capacity of approximately 1.5 million tonnes/year.

North America market. North American pulp buyers continue to report reduced month-over-month spot softwood and hardwood pulp prices. Most said the December-over-November reductions are in the $20-$30/tonne range, but there are also some reports of as much as $40-$50/tonne.

A mid-sized buyer said NBSK sellers are offering “thousands of tonnes…1, 2, 5,000 tonnes” and that he has received multiple offers in the $610-$630/tonne range, down from spot prices in November he described as about $640-$650/tonne. He said “temporary allowances” off of the current $890/tonne list price are mostly in the $20-$30/tonne range. He said sellers are matching or close to matching Terrace Bay Pulp’s effective list price of $860/tonne in their net pricing.

He described his spot hardwood pulp price as mostly at $500/tonne, or down $20/tonne. He and others continue to mention prices in the high $400s for some tonnage being shipped from nearby mills.

Though a few northern bleached hardwood kraft (NBHK) producers announced a Dec. 1 list price of $715/tonne for aspen/mixed northern bleached hardwood kraft (NBHK), down $15-$20/tonne, depending on the producer, the aforementioned buyer said he expects the December list price to be $700/tonne.

Another mid-sized buyer said the list price is $715/tonne, and he said spot NBHK is mostly at $530-$550/tonne, down $20-$30/tonne.

He said some BEKP producers had told him their December price is $745/tonne, while the other buyer said he expects BEKP to be at $740/tonne. Each said these prices are off of RISI Inc.’s $770/tonne price for November. One of the buyers said he was happy to see that the November price at this level, especially considering that it is still $100/tonne higher than the price in Europe. Such differentials happen “when the market is as sloppy as it has been,” he commented.

(Some BEKP producers, who say the price should have been $800/tonne have disputed RISI’s $770/tonne price. These producers supply lesser quantities to the North American market than does BEKP giant Fibria, which has the bulk of the business, serving major North American tissue producers who enjoy very large discounts.)

The December list price of southern bleached softwood kraft (SBSK) pulp in North America is $850/tonne, down $30/tonne. One of the buyers said spot SBSK is being offered in the $630-$650/tonne range, down $40/tonne from what he said was the November range of $670-$690/tonne. But, he said, “A lot has to do with inventory reduction programs” at year’s end. “I’m not sure what happens in January,” he said. He said he is also getting calls from NBSK producers who are trying to get inventory off their books, “but they can’t get (the price) to the number I need…so SBSK is an opportunity for us.” Looking at both softwood and hardwood (including eucalyptus) pulp, he said suppliers have been offering tonnage at $40-$50/tonne off of list prices.

He added that his delivered wet-lap deinked pulp (DIP) price fell $100/tonne over November, in response to the recent rapid decrease in the price of wastepaper furnish for DIP.

One of the buyers said he has received offers of roll pulp for $610/tonne from multiple producers of SBSK. And a North American-based pulp agent said “the U.S.” is shipping roll pulp to Europe and China.

A source for a smaller-scale specialty papermaker said his mill will be down for 10 or 11 days during the holidays, twice normal, because business is so slow, reflecting end-user caution about making purchases. He and others have noted that there is considerable market downtime among U.S. producers of many kinds of paper. Under such conditions, he doesn’t need as much pulp, he commented.

(As a case in point, on Dec. 20, The Herald in Rock Hill, South Carolina, reported that Resolute Forest Products is curtailing a lightweight coated paper line at its Catawba mill from Dec. 23 until Jan. 9, due to slow orders, marking the mill’s first market-related downtime since march 2009.)

The aforementioned specialty papermaker said he has been offered sizeable quantities of BEKP in the upper $500s/tonne, “but I can’t use it…I don’t have any orders so I can’t buy it.” Even so, the price would have to be in the mid-$500s to make it competitive with NBHK, which he is seeing at $550/tonne for “the normal stuff” to as low as $500/tonne, down from what he saw in November at $600/tonne. He is receiving NBSK offers in the mid-$600s/tonne, which he said is down $50-$70/tonne from November. The question, he said, is whether pricing is at the bottom, “or do I hang on for another month?”

“Pulp (pricing) continues to deteriorate, but people don’t need anything,” he said. “People are hand to mouth. Nobody has cash.” What’s different about this pulp price down cycle, he added, is that prices of other raw materials aren’t necessarily following the trend, with chemical prices on the rise, natural gas prices down, and diesel prices increasing.

FOEX Indexes Ltd. said that for the week ending Dec. 17, the NBSK price in the U.S. remained unchanged at the list price of $890/tonne, which is the price to which it fell, by $6.92/tonne, the previous week.

But FOEX said the good shipment volumes to China in the fourth quarter have not been enough to prevent the market from deteriorating further, with regional demand down amid reduced paper production activity.

“NBSK prices will likely head lower next month for the 7th month in a row!” wrote industry analyst Paul Quinn of RBC Capital Markets in a Dec. 21 research note. “We see the bottom for this down cycle by February 2012, with NBSK hitting $870/mt, as realized prices (up to 25% below list!) get closer to marginal producer cash costs (~$620/mt)” Quinn wrote. (The parentheses are Quinn’s).

Europe moves. Looking to January in Europe, a knowledgeable source said Stora Enso believes pulp prices have bottomed, in addition to “some very good demand in China as of late.” He said the company expects stable demand in Europe in the first quarter, “as pulp customers start the New Year with very low stocks.” In announcing its January price of $850/tonne, Stora Enso didn’t say how much it was rising from December.

A market pulp consultant said in recent days that the effective December list price of NBSK in Northern Europe is likely to be $830/tonne and that he has heard that some business has been done at $820/tonne, as well. The general November price was $860/tonne, he said.

Sources have said over recent weeks that the November price of NBSK in Italy was $820-$830/tonne, while the BEKP price was about $640-$650/tonne.

A pulp agent in Italy said early last week that customers told him they had not yet closed business. But he said it appeared that softwood pulp prices would be reduced by $30/tonne, “while hardwood is in a much better situation” and that some BEKP producers had requested an increase, to $690/tonne.

“The paper market is not encouraging,” the agent said, noting that both tissue and printing and writing papermakers are taking extended downtime during the holidays “in order to reduce the volume in the market and try to keep the price at today’s level.” (He said tissue producers are taking 10 days down starting Dec. 22.)

The market pulp consultant said he has heard that some BEKP producers are asking for an effective list price of $675/tonne in Northern Europe. This is in contrast to Fibria’s December announcement for Europe of $730/tonne. The consultant said the November price in Northern Europe was $650/tonne and some BEKP producers have told Forestweb the price was around $660/tonne or a bit higher.

For the week ending Dec. 17, FOEX said the price of NBSK in Europe was $838.63/tonne, down $7.75/tonne. In euros, the price was €641.94/tonne, up €9.56/tonne, as the euro weakened by 2.4% against the U.S. dollar for that week.

The BHKP price in Europe was $658.31/tonne, down $1.87/tonne, and the price in euros was €496.26/tonne, up €10.47/tonne.

“The most recent numbers confirm the perceived weakness,” FOEX wrote in its Dec. 20 remarks. It noted that the European market pulp consumption numbers, published by Utipulp, were down in November by 8.0% against November 2010 and that port stocks moved back up in November by nearly 4% after the big October decrease, and were 43% higher than a year ago. “The strengthening of the USD puts further downward pressure on the price of pulp in dollar-terms,” FOEX wrote.

With woodfree paper production in CEPI (Confederation of European Paper Industries) countries down by more than 10% in October “and with weakness obviously persisting also in November,” FOEX wrote that the demand for market BHKP remains lackluster although it is aided by growth in the tissue sector and the wide price gap between softwood and hardwood pulps. It noted that the Utipulp November numbers showed BHKP consumption down by about 7% against November 2010 as well as against October 2011.

China picture. Sources said China activity is quiet this month, after the strong purchase push in November. And they note that that tonnage will be spilling into ports over the coming weeks, adding considerably to buyers’ inventories.

In its Dec. 20 announcement of a Jan. 1 $670/tonne NBSK price in China, Stora Enso didn’t indicate the amount of its increase. As previously reported, various sources have said that considerable spot tonnage was sold into China for as low as $620/tonne during November--some was also sold for up to $650/tonne--and a few sources have said that some tonnage can still be had in December for the low amount.

“I don’t think there will be a price increase in January, even a little,” said a larger-scale Chinese buyer. “No matter what the list price is, the net price will be the same as November and December: $620-$650.” Meanwhile, he said customers that have money for additional pulp are continuing to build inventory because the prices are still low.

As for BEKP, he said most transaction prices in December have been the same as in November ($500-$530/tonne), but that suppliers now seem reluctant to sell large volumes. (Some other sources have said that the price has come off the low end in December, up to $530/tonne.)

“Fibria’s announcement (to $580/tonne) did not make sense,” the buyer said. “Nobody cared about it.” But if there were to be a 10% discount off of $580/tonne, to $525/tonne, it would constitute “big progress,” he said.

He described purchasing activity (both softwood and hardwood) as slow compared to November. Activity in January will also be slow, since buyers already have a lot of pulp and paper inventory on hand and because the Lunar New Year is coming up. He named one port that is said to be holding about 40%-50% more pulp than average, “And the pulp bought in November will arrive soon.”

After the Lunar New Year, customers will continue to buy, but it will be hard to reach “normal” volumes, he said. Nevertheless, he expects prices to increase in March.

An agent doing business in China said that in November, Chinese softwood pulp customers also renegotiated prices for previously concluded business. They hadn’t yet opened letters of credit (LCs) for $820/tonnage in October or earlier, he explained, but “all of a sudden people opened LCs” when the range dropped to $600-$700/tonne, depending on the supplier.

Now, he said, customers have what they need until after the Lunar New Year, and he and various sources don’t expect much difference in the market until then. “After the Chinese New Year, things will change, but not dramatically,” he said.

At the same time, spot softwood pulp tonnage continues to be available in China, he and other sources said. “There’s extra tonnage, all coming from Canada, the U.S. also, and from Europe,” resulting in slightly more availability of softwood pulp from suppliers that sell to other regions, the agent said, and this has left China supplied with more softwood pulp market than otherwise would have been the case. “Hardwood (suppliers) cleaned up their inventory better than softwood,” but in the long run, hardwood pulp will be more challenged than softwood, he said.

FOEX said that for the week ending Dec. 17, the price of NBSK in China fell by $2.18, closing at $667.44/tonne. It described recent demand for BSKP as appearing to have been “relatively good.”

FOEX said the BHKP price in China dropped by $5.82/tonne, to $557.02/tonne, even though some sources reported slightly higher pricing from the lowest quotes in the recent past.

In its Dec. 20 remarks, FOEX said the buying activity for BHKP has quieted down and it noted that typically the Chinese paper mills take downtime during the Lunar New Year, which begins Jan. 23. “That impacts the willingness to receive pulp in the preceding weeks. Consequently, the December intake is likely to be lower than the likely high shipment numbers to be recorded for November,” FOEX wrote.

But FOEX said the ordered closures of the non-wood pulp based paper mills could support woodpulp purchases in early 2012 if the closures are timed as ordered.

On the softwood pulp side, FOEX noted that the price gap between softwood and hardwood pulps, while “clearly smaller than in Europe,” is still more than $100/tonne, “which is enough to encourage consumers to switch from BSKP to BHKP, if technically feasible.”

BCTMP prices. Bleached chemi-thermomechanical pulp (BCTMP) prices have fallen back to where they were before the August/September gains or around $10/tonne below that, noted a sales executive for a supplier.

He said the China softwood BCTMP price for December, as well as for January, is $530/tonne (list)/$500/tonne (net). Negotiations have been slow, with November pricing not having settled until the first week of December, he said.

He said certain board sectors in China, such as for cigarette and food industries, are doing OK, but that SC-A (supercalendered groundwood paper) and folding boxboard sectors are not, reflecting reduced exports. “People are not buying toys,” he commented.

Meanwhile, the BCTMP market is being helped somewhat by the reduced high-yield pulp production in China, he noted.

On the horizon is additional BCTMP capacity, however. Oji Paper Co.’s Pan Pac Forest Products Limited in Whirinaki, New Zealand, is moving along with the project to convert some of its thermomechanical pulp (TMP) operation to high-grade BCTMP, which has a targeted startup of April 2012 and ultimate production capability of 200,000 tonnes/year. The output will be particularly suited to manufacture of high quality cartonboard, and the target markets are China and the greater Asian region, the company said in a Sept. 29, 2011, press release.

Korea news. In November in South Korea, softwood pulp prices fell by $80/tonne, matching Korean contract pricing to Chinese spot pricing and thus narrowing the gap, said a pulp agent in the country. This brought list prices to $765/tonne for NBSK, $730/tonne for BRKP, and $720/tonne for SBSK, he said. He noted that the current gap between NBSK and radiata is $35/tonne, rather than the usual $15/tonne. He said spot softwood business appeared to be nil, because customers purchased their contract volumes, at minimal levels, and nothing beyond.

Unbleached kraft pulp (UKP) went from $680/tonne to $630/tonne in November. But the agent said rolled UKP suppliers couldn’t drop their price by $50/tonne because they had already been pricing $50-$60/tonne less than sheeted pulp.

Hardwood pulp list prices of all kinds, including BEKP, dropped by $70/tonne, to $560/tonne, he said, with net pricing at $530-$535/tonne for BEKP and $510/tonne for Indonesian mixed tropical hardwood pulp.

BCTMP prices in Korea fell by $40-$50/tonne in November, he said, including to $575-$585/tonne for aspen 85-bright, from $625/tonne, and to $575/tonne for softwood, from $615/tonne. The high-yield contracted price is no longer favorable to the hardwood kraft pulp price, which has become an issue, he observed. (The aforementioned BCTMP supplier noted that Korean customers’ discounts are factored in, their price is about the same as in China.)

The agent said South Korea’s Moorim Pulp and Paper is consuming all of its own pulp internally now rather than selling it on the market, thus saving on the cost of producing its paper, but that times have nevertheless become difficult because paper prices are no longer competitive.

Although major pulp suppliers visited Korea this month, 2012 contracts weren’t necessarily finalized and therefore there is no certainty about what the 2012 contractual discount rates will be, he said. “Buyers are not in a hurry as they are enjoying low pulp prices and suppliers believe that it’s not good timing to activate negotiations,” he said, adding that he doesn’t expect buyers to sign contracts until March or April. Instead, he said, they will buy pulp from the spot market.

Looking at the printing and writing sector, he said the domestic sales volume in November was similar to October’s, and down some from the September-to-November peak season. A significant price drop in Middle East markets caused difficulty for Korean exporters, who tried reducing their prices or not pursuing sales, he said. The major issue of local papermakers remains securing their domestic market share, he said, adding that the export price was again generally down $20-$30/tonne.

He said November was also a difficult market for Korean carton board producers. Local makers tried to minimize price decreases but had to reduce their prices again in October, he said. The domestic market was not good due to cautious buying as the end of the year approached, and producers tried to compensate with increased export sales, he said.

Looking at containerboard, he said continued high prices of recycled paper, especially of old corrugated containers (OCC), have hampered the ability of local mills to compete in overseas markets. Domestic demand was not good as box makers tried to adjust their inventory ahead of the end of the year, and some local containerboard mills took three to five days of downtime, he said. Regarding kraft paper, the situation was almost the same as that of containerboard until November, when local mills managed to start exporting some volume, he said.

He said newsprint export volumes were relatively stable in November, but that local producers suffered from downward price pressure, even though they had already dropped their export price by $15/tonne for the fourth quarter. Furthermore, domestic sales were difficult because of publishers’ strong push for lower prices, in light of the decrease in the price of recycled paper. He said local newsprint mills have aggressively tried to expand their product ranges.

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