January pulp prices continue to move to or hug bottom in North America and Europe, while hardwood pulp prices rise some in China, where floor was reached earlier

Diane Keaton

LOS ANGELES , January 8, 2012 (Industry Intelligence) – Global pulp prices are expected to be mostly unchanged to slightly lower in January, following pushes to clear inventory at the end of 2011, and as demand remains subdued globally amid ample supply.

For the first quarter of 2012, pulp players expect prices to remain generally flat around the world, given the current state of pulp and paper markets as well as lackluster global economic indicators. As one source put it, “I hope for a turnaround in the U.S. economy and that Europe doesn’t crash.”

In an otherwise quiet week in which many were returning from holiday breaks, Canfor Pulp LP of Vancouver, British Columbia, began announcing to North American customers, on Jan. 5, that it has reduced its northern bleached softwood kraft (NBSK) pulp list price by US$20 per tonne, to $870/tonne.

Canfor Pulp’s announcement may have been one of the few downward moves left to make, now that pricing is so low across the board around the world, sources said.

In fact, pricing in China for bleached hardwood kraft pulp (BHKP) was stable in December and in some cases moving up a bit from the lowest levels, reached in November, and January is seeing some movement, as well. Buying activity has continued in January for both BHKP and bleached softwood kraft pulp (BSKP). But activity in China is expected to slow leading up to the Lunar New Year, which begins Jan. 23. At that point, the region will pretty much be out of the market for a couple of weeks, as suppliers wait and wonder about the extent to which demand will pick up afterward.

Also on the hardwood pulp side, on Dec. 22, bleached eucalyptus kraft pulp (BEKP) producer Suzano Celulose e Papel SA of Brazil announced a $790/tonne list price for the U.S. for January. As well, Suzano stated prices of $730/tonne for Europe (list) and $580/tonne for China (net), which followed the earlier move of BEKP giant Fibria Celulose SA, also of Brazil. (Fibria did not announce a price for North America.)

As reported last month, two Finnish producers, Stora Enso Oyj, followed by Oy Metsä-Botnia AB, said they were raising their January prices in Europe to $850/tonne, and Canfor Pulp then announced that price, as well. But there has been no such announcement from Södra Cell AB of Sweden, the largest NBSK producer in Europe.

Stora Enso also announced a $670/tonne price for China—industry sources said some Finnish pulp had sold for as little as $620/tonne in December--and Canfor Pulp said it was keeping its list price of NBSK unchanged in Asia. Canfor Pulp’s list price of reinforcing NBSK in China is $690/tonne, while Western Canadian commodity NBSK producers were at $680/tonne in December; sources said net prices were around $650-$660/tonne.

Also for China, although Chile’s Celulosa Arauco y Constitución SA (Arauco) announced last month that it would increase its January price of bleached radiata kraft pulp (BRKP) by $10/tonne, to $660/tonne (net), the BRKP market price stayed flat in January, sources said. In addition, last month Arauco announced that its January BEKP list price in China would be $580/tonne, up from a December net price of $530/tonne, and that its price of unbleached kraft pulp (UKP) would be $600/tonne net, unchanged from final December prices.

Separately, on Jan. 2, Arauco temporarily closed its Nueva Aldea pulp mill in Chile’s Bio Bio Region as forest fires raged in the area. The plywood plant at the Nueva Aldea complex was destroyed and on Jan. 6 Arauco said more than 7,000 hectares of plantation had burned (Timber Trades Journal reported it was radiata pine). At week’s end, the pulp mill was reportedly being brought back into operation; it consists of two lines, one producing BRKP and the other one producing BEKP, each with a capacity of 515,000 tonnes/year.

Tough sell. An agent doing business in such markets as Turkey and the Middle East said BEKP pricing in the region has been varying according to the seller of late and that North American-made northern bleached hardwood kraft (NBHK) pricing in Turkey—most recently at $525/tonne--is making it difficult to increase BEKP prices. He said some BEKP from a minor producer has sold at $550/tonne while BEKP tonnage from some larger producers was priced “way below” that. He said a major producer might have reached $570/tonne in the Middle East, but not yet in Turkey.

With hardwood pulp pricing in the region still at low levels, demand remains relatively low for NBSK, and price-increase efforts are not getting traction, he said. He named a European NBSK producer that sold 1,000 tonnes at $630/tonne on 180-day terms during the last week of December. He said offers abound for $625/tonne (for BSKP) and $530/tonne (for BHKP) for February shipment and March arrival.

A North American agent selling pulp into the Middle East and other international spot markets said business is slow into the Middle East, following a number of deals for December invoicing aimed at removing tonnes from inventory. For producers, “Things are not great but they’re not in panic mode,” he said. With the financial year having just ended, some producers are taking a brief breather to watch regular orders come in before engaging in another round of pricing talks, he said.

“I don’t think pulp prices can go any lower. If they do, there will be massive shutdowns,” he said. “I think we did it all (price drops) in December. In China, prices “can’t go lower and they don’t want to lose suppliers,” he added. After the Chinese New Year, there could be some slight improvement “for good relationship’s sake” but any real improvement needs to be demand-driven, he commented.

As prices continue to lag and as time goes on, there is more talk from sources that operations are on the verge of being unsustainable, if they are not already. But so far there haven’t been many mill shuts. Sources also note that with prices already so low, currency fluctuations can make or break a mill’s ability to be sustainable.

“The first quarter is going to be tough, especially with no downtime being taken,” said a market pulp consultant.

BEKP producer Fibria “has been making a lot and not selling it,” he said.

And as for NBSK, he said that Finnish producers kept making pulp through the holidays while not producing paper. (Finnish regulations no longer require certain shuts during the holidays, he noted.) Finnish producers now have “plenty of stock and there will be plenty more in January,” especially if they stick to the announced $850/tonne price for Europe and it doesn’t succeed, he said. In contrast, he said the quantities of Finnish NBSK sold in China, largely in November and at $620/tonne, had already been produced.

“I think we will hear mill closures on the Finns,” he said.

North America news. Canfor Pulp’s $20/tonne reduction for North America wasn’t a huge surprise, given the state of the market and the gap between prices in North America and Europe. Various sources have been saying there was still a bit of room to reduce the NBSK price in North America, where the price decline of recent months has not been as severe as in other major markets.

Some North American softwood pulp buyers have been complaining to suppliers about the price gap between North America and Europe. In recent days, a buyer described it as “way too big compared to normal.” He added that although a $40/tonne gap would still be large by historical standards, it would be acceptable, whether resulting from a price increase in Europe or a price decrease in North America.

Even if the January North America price is $870/tonne, if the price in Northern Europe remains in the $820-$830/tonne range, rather than rising to the announced $850/tonne, the gap would still be at least $40/tonne.

A January $20/tonne softwood pulp price reduction in North America would also help narrow the continent’s gap between softwood pulp and hardwood pulp sectors, a U.S. buyer commented. A $170/tonne spread “would appease some folks, as well,” the buyer said.

For the week ending Dec. 31, FOEX Indexes Ltd. said the U.S. price of NBSK remained unchanged at $890/tonne. This was the fourth straight week at this price. On Jan. 3, before Canfor Pulp had announced its $20/tonne decrease, FOEX wrote, “No official price changes have been announced from January 1 but reduction promises in the individual buyer/seller discussions/correspondence are rumoured to have been made.”

The Canfor Pulp move came toward the end of the week, so it remained to be seen what other NBSK producers would do. So far during this down cycle, whenever large-scale NBSK suppliers to North America such as Canfor Pulp and Domtar Corp. have announced a price reduction for North America, it has been followed by other producers of NBSK as well as by producers of southern bleached softwood kraft (SBSK) pulp.

A sales executive for another Canadian NBSK producer said his company was “discussing” the $870/tonne price. Given the large gap between list and net prices, “There’s probably not much more to give on the list price,” he said. For some mills, a small decline might be possible, but for others the margins may be too tight, he said, adding, “Some are already down, so that’s an indication.”

Buyers, of course, were happy about the Canfor Pulp move to $870/tonne and they were wondering if others would follow. “I do believe $20 down makes sense. It’s still weak out there,” said a buyer. Many suppliers are only $20-$40/tonne from break-even, and some “may be under water,” he said, adding, “So if $870 sticks, it’s probably the bottom.”

And another buyer surmised that $870/tonne would be the floor for 2012. (This isn’t necessarily the consensus; one forecast for the first quarter is for $850/tonne.)

A market pulp consultant said suppliers had mixed responses to the $870/tonne price, with some wondering ‘what took you so long?’ and others saying the move was unnecessary. But he said he hadn’t expected $890/tonne to hold, given the gap with European prices, and that $870/tonne will likely be the price across the board in January in North America.

BEKP pricing continues to be muddy in North America. Suzano announced its $790/tonne price for January before Christmas. Then later in December, RISI Inc. said the December effective list price of BEKP in the U.S. had dropped $30/tonne, to $740/tonne. So this would make Suzano’s January price a $50/tonne increase over December. (RISI’s December prices were also $30/tonne down for North American-produced BHKP grades sold domestically.)

As previously reported, some BEKP producers had said their November list price was actually $800/tonne and they protested RISI’s November price of $770/tonne, which amounted to a sizeable $55/tonne drop from October. The aforementioned market pulp consultant said the RISI pricing is more a reflection of one major buyer’s deal with Fibria than what other buyers were paying, but that the RISI price nevertheless became “a self-fulfilling prophecy” across the board.

(Late last week a buyer said BEKP producers “are trying to ward off further erosion and willing to deal despite announcements.”)

A source whose company produces NBHK said some spot pricing for that grade is still as high as “$540, $550, $570, depending on freight.” Echoing others’ reports from late in 2011, he said $500/tonne is the lowest price in the market, except for some below $500/tonne that is “really local.” He and others have been noting that as prices fall to marginal levels, freight plays an increasingly critical role regarding mill nets.

Various sources last month were expecting the December price of aspen/mixed NBHK to drop by $30/tonne, to $700/tonne, and that appears to have been the case. The above buyer said $700/tonne surely marks the bottom, considering the sizeable discounts off of list prices. “The percentage doesn’t even make sense any more at these kinds of numbers,” he said.

The numbers are also too low for exporting, he said, but producers can “scrape by” with domestic sales, covering cash costs but not contributing to full costs. Even if mills don’t formally announce downtime, some are likely to slow production where possible, he said, observing that downtime during the dead of winter is an unwelcome prospect. Others note the likelihood that some producers will extend downtime during upcoming spring maintenance shuts.

It is not clear whether effective list prices in North America of NBHK and other hardwood pulps will move down a bit more in January. But spot prices appear to have stabilized, with little or no change from December, buyers said. One NBHK buyer said most of his pricing is at $565/tonne, as was the case in December, although he also had a “short term” January opportunity at $525/tonne. Another put spot pricing at $530-$540/tonne, unchanged or down $5/tonne, but the buyer emphasized that there continues to be plenty of opportunity to buy tonnage.

As well, “sizeable blocks” of NBSK were available in December, apparently having been shifted from Asia to North America, the buyer added.

On the paper side, markets are about the same as in recent months. For the most part, printing and writing papers are struggling and tissue is okay. Some sources at specialty mills report good business for their particular products, while others say times are especially slow.

Europe market. The market pulp consultant said that in Italy, the NBSK December price settled at mostly $800/tonne but that there was also some tonnage sold at $790/tonne and $780/tonne. This was down from around $820-$830/tonne in November.

He said the announced $850/tonne NBSK price for Northern Europe will be tough to achieve without the support of Södra and that it will be “a real struggle” for producers to hold on to their December pricing of $820-$830/tonne, “even without the euro moving lower.” Further weakening of the euro could bring the price down some more, he said.

The euro now stands at just US$1.26780. “A combination of strong U.S. employment data and relentless fears about Europe's debt troubles sent the euro tumbling Friday to a new 15-month low against the dollar,” shedding more than two cents on the week, The Wall Street Journal reported on Jan. 7. The euro was “unable to overcome the pessimism that has walloped markets world-wide for the last two years,” it reported.

FOEX noted the strengthening of the U.S. dollar continues to pressure the price of pulp lower in dollar-terms. For the week ending Dec. 31, FOEX said the NBSK price in Europe fell by $4.67/tonne, to $829.04/tonne, following a $4.92/tonne decline the week before. In euros for the week ending Dec. 31, the price rose by €2.21/tonne, to €640.73/tonne.

FOEX said its index for BHKP lost $3.01/tonne, closing at $648.85/tonne, compared to a $3.55/tonne gain in the previous week, while in euros, reflecting the 0.9% drop against the U.S. dollar, it rose by €2.23/tonne, to €501.47/tonne.

Hardwood pulp producers generally didn’t make headway in Europe during December, according to Forestweb sources. And the FOEX index for BHKP has a long way to go to reach the $730/tonne price announced for December by Fibria, and which Suzano has since announced for January.

But FOEX did note in its Jan. 3 remarks that although the BSKP market was stronger than that of BHKP during most of 2011, the two grades are fairly equal now. “If anything, the BHKP market is turning slightly stronger of the two,” FOEX wrote.

China movement. Spot hardwood pulp prices in China appear to be improving a bit this month, as they also did in December, coming off November’s bottom.

There is still spot hardwood pulp pricing in the $520-$530/tonne range, sources said.

For the week ending Dec. 31, FOEX said the BHKP price in China dropped by 31 cents/tonne, to $562.22/tonne. This followed the previous week’s $5.51/tonne gain.

FOEX said the NBSK price in China fell by $2.99/tonne, to $661.06/tonne. The week before that, it fell by $3.39/tonne.

Though the BEKP price in China has been moving up a bit, sources so far are not seeing the announced $580/tonne price. Some might have risen to around $550/tonne, though.

A Chinese agent said that he expects softwood and hardwood pulp markets in China to be stable during February and March, with perhaps a “real recovery” in April. By then, pulp supply will be more in balance, following maintenance shuts in Canada and Europe, he commented.

He said that in China next week or the following week, the activities in the business community will mostly be focused on festive social gatherings, in advance of the Chinese New Year, which begins Jan. 23.

Before the Christmas holiday, the price range in China for all grades of hardwood pulp was $510-$540/tonne, adding up to more than a half-million tonnes of pulp “concluded and shipped to China,” with eucalyptus alone accounting for 400,000-500,000 tonnes, he said.

The lowest price for BEKP was $510/tonne, for about 40,000-50,000 tonnes, mostly from one non-Brazilian producer, he said. Various South American producers moved about 400,000 tonnes in November/December in the $530-$540/tonne range, and others were selling at about $520/tonne, he said.

“It seems the hardwood market is still very active, more than for softwood,” due to supply factors, he said. Those factors include the closure of many non-wood mils in China and the low pulp inventories of most paper mills from August-September to November/December, as end-users speculated that prices would fall further, he said.

The agent said hardwood pulp prices “really picked up” in the last two weeks of December have risen by about $30/tonne compared to their lowest levels. Brazilian and other BEKP prices are around $530-$540/tonne and perhaps some business is concluding at $550/tonne, he said, while non-BEKP hardwood pulp is in the $520-$530/tonne range.

In local currency, the latest BEKP price range is RNB4,300-RNB4,350/tonne, up about RNB200-RNB-300/tonne, he said.

He said hardwood pulp prices might strengthen a bit more before the Chinese New Year. “Most of the big paper mills want to build inventory before the Chinese New Year,” he said. “Most had been relying on local suppliers, with hand-to-mouth quantities, so at this moment they have very low inventories so they have to build up,” meaning there will be continuing good demand for hardwood pulp, he said.

But with around 400,000 tonnes of hardwood pulp arriving in China in the coming weeks, the agent said he is wondering how much price recovery can be achieved.

The agent said the BSKP market is still sluggish, but that there have been more inquiries this month than last. December prices have held up in January so far, he said. The after-discount price for Canadian NBSK is in the $650-$660/tonne range and for BRKP it is around $640/tonne, he said, describing the local price range for NBSK as RNB4,800-RNB4,900/tonne.

But he named a troubled Canadian NBSK producer that he said has moved perhaps 4,000-5,000 tonnes to China in the last couple of weeks at $620/tonne. The tonnage that was already on the water to China but the original orders fell through because certain customers were unable to open letters of credit (LCs), he said. “If they keep moving it below $650, they can’t make money,” he commented about the company.

Chinese traders’ softwood pulp inventories are still fairly high and warehouses are still full, with softwood pulp accounting for 70%-80% at the main ports, the agent said. Much of the tonnage was purchased when prices were higher, in the high $800s/tonne to low $900s/tonne, so this has also slowed activity, he said, adding that he doesn’t expect the excess tonnage to be absorbed in the market for another two or three months.

Though several sources see Canfor Pulp’s NBSK price of $870/tonne in North America as helping to close the gap with the price in Europe, the Chinese agent said this it could have a similar effect with China, where the market first bottomed and then stabilized. “Maybe we will see adjustments in Europe and the U.S. to match the Chinese market, which is normal,” he said.

Other grades. Looking at dissolving pulp, a sales executive for a dissolving pulp (DP) producer said the commodity market in China is quiet and that it will probably remain so until after the Lunar New Year. The end-of-December viscose grade price of $1,110/tonne is holding, he said, adding that pricing outside of China varies according to freight.

Separately, in a Jan. 5 research note, paper and forest products industry analyst Steve Chercover of D.A. Davidson Research said specialty DP producer Buckeye Technologies Inc. is selling its product at new higher levels (“up by double digits”) in all markets including Europe.

Chercover described (global) fluff pulp prices as down by approximately $80/tonne from their $1,040/tonne summer peak.

The market pulp consultant said demand in China for imported bleached chemi-thermomechanical pulp (BCTMP) has been picking up, especially for softwood BCTMP. This could be related to locally closed mills, since BCTMP competes with non-wood fiber, he said.

As Forestweb reported on Dec. 25, a BCTMP producer said demand for imported BCTMP is being helped somewhat by reduced high-yield pulp production in China, but that demand varied according to end-use.

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