Pulp producers seeing March price increases in major world markets; hardwood remains tighter than softwood, but both make gains

Diane Keaton

LOS ANGELES , March 4, 2012 (Industry Intelligence) – Prices of most kinds of pulp are increasing worldwide this month following strengthening in February.

Pulp prices continue to come off of their fourth quarter bottom and suppliers are seeing pricing gains.

Last week saw a few additional price announcements for March, essentially from companies following earlier announcements for various markets. A number of companies have not stated March plans.

The late-2011 sharp reduction in hardwood stocks, via downtime and heavy sales volumes, “is winding it way through the market now,” commented a market pulp consultant. Though the current price increases are essentially supply- rather than demand-driven, he said, for ‘producers it is “‘Mission accomplished’—it got people buying.”

A sales executive for a major European producer said the current market strength is “to a large extent supply-driven, but not entirely.” He said fine paper machines in Europe and China have been doing much better since the beginning of the year, describing them as “very busy.”

Meanwhile, some European papermakers have announced higher prices, and late last week, several North American uncoated freesheet (UFS) papermakers announced increases to take effect with April shipments.

Pulp supply will continue to be restricted as Northern Hemisphere mills take spring maintenance outages. However, ongoing lackluster demand in some printing and writing paper sectors continues to put a damper on the overall strength of the market. In mid-year, which tends to be seasonally slow for papermakers at the same time producers are running full out, the pulp market may slacken again, sources said.

“There are still questions about how the market will be, going into the summer,” said a sales executive for a North American producer of both softwood and hardwood pulp grades. But, he said, “I would be very, very surprised not to see an increase in April as well as May due to some contraction in supply—whether up $20 or $30 remains to be seen. I would not be surprised to see NBSK (northern bleached softwood kraft pulp) up by $40 or $50 by the first of June.” He said he wonders whether bleached eucalyptus kraft pulp (BEKP) price hikes will lead similar or higher price increases for other hardwood pulps.

Middle East. Sources continue to report rising prices in the Middle East spot market. “It is rapidly catching up to the rest of the world,” said a North American agent doing business in the region. Starting in January, he said, business has been much more brisk than usual for this time of year.

NBSK is at $700/tonne and other bleached softwood kraft pulp (BSKP) is at $680/tonne, he said, commenting that the Middle East market is using China prices as a benchmark. NBSK prices are moving up weekly after having bottomed in the fourth quarter, he said. There is still considerable tonnage coming from Scandinavia, but they “are not giving it away,” he said, including “big orders” of 1,000 tonnes and minimum orders of 500 tonnes, he said.

The new BEKP prices are all in the $600s/tonne, he said, with large-scale buyers paying $610-$620/tonne and smaller buyers paying $630-$640/tonne.

There is psychological momentum in the Middle East, not necessarily because inventories have come down somewhat, but essentially because BEKP producers told customers that they are the low-cost suppliers and that prices need to improve “or there won’t be any eucalyptus,” he said.

Producers are increasing prices in “a very delicate manner, say, by $10/tonne or $30/tonne, as they test the waters, he said. “Still, it puts into the buyers’ minds that they had better buy now or they’re going to pay more later,” he said.

Another pulp agent said in recent days that in Turkey, his company has seen hardwood pulp increases of as much as $60-$70/tonne, maybe $80/tonne, compared to the low point in November.

North America prices. The NBSK list price in North America is unchanged in March, with such producers as Canfor Pulp LP, Mercer International Inc., and Resolute Forest Products having told their customers that they are keeping the $870/tonne price that has been in place since January.

Spot prices of NBSK are still low relative to the list price. On Feb. 27, paper and forest products industry analyst Mark Wilde said spot volumes were still in the $620-$630/tonne range. Some sources in February said spot tonnage was in, say, the $640-$670/tonne and $650-$680/tonne range, and they described spot pricing as unchanged from January.

For southern bleached softwood kraft (SBSK), Resolute has raised its March price by $20/tonne, to $850/tonne. Also International Paper Co. announced a global $20/tonne SBSK increase for March.

Both IP and Resolute have announced global March 1 $30/tonne increases for fluff pulp, to $965/tonne and $960/tonne, respectively. But some other fluff pulp producers have been silent and some didn’t think the price was as high as the $930s/tonne to begin with, said a market pulp consultant, who added that a more accurate number would be $910/tonne.

Several major northern bleached hardwood pulp (NBHK) producers, Alberta-Pacific Forest Industries (Al-Pac), Sappi Fine Paper North America, and Resolute, have announced the $30/tonne March 1 increases for North America. A buyer said Domtar Corp. told him that it is supporting the $30/tonne increase. For aspen-grade NBHK, Al-Pac is at $735/tonne and Resolute is at $730/tonne; for aspen and mixed NBHK, Sappi is at $730/tonne, and for maple-grade NBHK, Sappi is at $740/tonne.

Resolute is also up $30/tonne, to $730/tonne, for southern bleached hardwood kraft (SBHK) and IP, too, has announced a $30/tonne SBHK increase for all global regions except Asia, where it announced a $35/tonne hike.

The sales executive for a North American producer of both softwood and hardwood pulp grades that while there hasn’t been a “dramatic” increase in printing and writing paper production in January/February, he expects spring pulp mill maintenance outages to lead buyers to place some orders in advance. Already, he said, he is seeing buyers putting a little more pulp in stock, say, an extra car or two, in response to increasing prices.

He noted that papermakers are generally disinclined to spend money for much additional inventory, and that integrated papermakers are especially cautious about purchasing fiber, out of concern that they might end up taking market-related downtime on their paper machines. But he noted that recent shuts of some coated and uncoated machines in North America have helped tighten the paper supply and that tissue “is still pretty strong.”

(Late last week, at least three North American uncoated freesheet producers, Domtar, Glatfelter, and Finch Paper LLC, announced price increases to take effect April 1, marking the first price hike efforts by North American fine paper producers in many months. Depending on the producer and the paper grade, the increases are for $30-$60/ton.)

With the Canadian dollar above par as it has been lately, and with discounts as high as they are now, “It’s hard to make a buck on softwood,” the sales executive commented, adding also that there are fuel surcharges and “remarkable” freight hikes that have gone from, say, $40/tonne to $80/tonne or more.

Although BEKP producers “took the bull by the horns,” liquidating their stocks in January and December and bringing their stocks into balance and enabling price hikes, he said. Still, he said, $820/tonne for North America “seems pretty robust” for buyers who pay the list price or close to it, even as the large tissue producers, which account for most of the BEKP business in the U.S., enjoy steep discounts.

A small-scale BEKP buyer who has no choice but to pay the new $820/tonne price was “shocked” at the price increase. “It seems when I ask for supply, it’s ample,” said the buyer, referring to both BEKP and NBSK. “There seem to be tonnes available.”

An NBHK customer said he is still getting spot tonnage in the low $500s/tonne. But another NBHK customer said the market feels tighter and that there are spot prices in the mid- to high-$500s/tonne. “Absolutely the transaction price is up,” he said, adding that he expects the announced $30/tonne list price increases to go through.

FOEX Indexes Ltd. said that for the week ending Feb. 25, the NBSK price in the U.S. was once again unchanged, at $870/tonne.

With the tissue sector now the key demand driver and with further substitution of BSKP by BHKP, the softwood pulp demand continues to fall faster than the total market pulp demand, FOEX wrote in its Feb. 28 comments. But at the same time, the supply of regular paper-grade BSKP is down as well, due to the closure of the Terrace Bay Pulp in Ontario along with southern pine pulps continuing to be converted into fluff pulp.

The fluff pulp market is again seeing “cautious improvement in demand, after a temporary – inventory change-related? – lull in shipments in late 2011-January 2012,” FOEX wrote.

Europe settles. Sources said the February NBSK price in Northern Europe settled at $830/tonne, unchanged from January. As reported on Feb. 23, Södra Cell AB of Sweden announced an $850/tonne price for March 1. Södra had not followed efforts of a number of other producers to raise the January price by $20/tonne to $850/tonne, and the price held at $830/tonne through February.

The other significant holdout for January was Mercer, which has not made a move for March, either. But Mercer’s pricing is based on a prior-month formula, so it has not yet spoken with customers about implementing a $850/tonne price, according to a knowledgeable source.

A sales executive for another major European pulp producer said that for March, his company will indeed try to achieve the earlier-announced $850/tonne price. He noted that such major producers as Södra, Stora Enso Oyj, Metsä Fibre Oy—this is the new name for Oy Metsä-Botnia Ab--and UPM-Kymmene Corp., which he described as “a substantial part of the European community,” are quoting $850/tonne for March 1. “I think there is at least a chance of getting it in March,” he said.

Beyond March, he said the second quarter could see a $20/tonne increase for both BEKP and NBSK, to $800/tonne and $870/tonne, respectively. The second quarter will be in better balance and calmer than the first quarter’s “pretty frantic” pace, he said.

As for Italy in February, he said the NBSK price moved up to about $810-$820/tonne, or about $10-$20/tonne below the Northern Europe price of $830/tonne, whereas in January it had been $20/tonne below that in the north. As for the fast-moving BEKP prices, he said, “I’m sure the Italians didn’t expect $60 in February.”

An Italian pulp agent said the February BEKP price in Italy was “definitely at $730 and it is very much probable that it will go to $760 in March.” Some customers expect the price to go even higher but then to fall back once the pipeline is back to normal levels, he said. For now, though, supply is tight and Italian customers without contracts could face temporary problems finding as much tonnage as they need, he said.

He said NBSK closed at $800-$810/tonne in Italy in January, depending on the size of the customer, with the market stabilizing and prices perhaps on their way up in a couple of months. But he said customers report the availability of bleached radiata kraft pulp (BRKP) at the ports.

A market pulp consultant said the February price in Italy ranged from $800/tonne to $820/tonne, with much of the business at $810/tonne. He described the price overall as up perhaps by $5/tonne or $10/tonne.

The Italian agent said the tissue market is okay, but not as strong as it should be at this time of year, with Italian tissue makers’ stocks above normal as machines run full. The printing and writing paper market is also okay, and there have been announcements of paper price increases, he said.

The pulp producer source said he is seeing mixed circumstances among his customers, with most uncoated producers announcing price increases and reporting being well-booked and oversold. But some others are taking downtime in March because they say they are under-booked, he said, surmising that this might have more to do with a concern about meeting profit targets.

On the whole, he said, the fine papers sector is busy. And he said the overall mood has become increasingly positive, compared to the negativity and insecurity of late last year amidst troubling economic news that dominated headlines. Customers may now think things weren’t that bad, after all, and they may be desirous of replenishing their pulp inventories, he said.

The consultant said buyers in Europe are acknowledging that the $730/tonne BEKP price has gone through, or at least to no less than $720/tonne in some cases. He said buyers in Europe were caught off guard as the New Year began, holding only limited hardwood pulp stocks. “They thought the uncoated freesheet side would be slower. They have been running better and didn’t have the pulp,” he said. “They have to pay for it and they have to search for it.” (In contrast, he said, mechanical paper grades are “not so good.”)

Looking at the FOEX prices in Europe for the week ending Feb. 25, NBSK closed at $830.10/tonne, down 32 cents, while the price in euros fell by €12.15/tonne, to €618.92/tonne, as the euro strengthened by 1.9% against the U.S. dollar from the previous week.

FOEX said the BHKP price rose by $8.11/tonne, to $722.30/tonne, and that in euros it fell by €4.19/tonne, to €538.55/tonne.

China buying. As previous reported, various key BSKP producers to China (except for Russia’s Ilim Group) are seeking $20/tonne increases in March.

Last week Metsä Fibre Oy in Finland added to the mix, announcing NBSK prices of $700 per tonne for standard grade and $710/tonne for reinforcing grade. Previously Mercer and West Fraser Timber Co. had stated $700/tonne for standard grade and Canfor Pulp had stated $710/tonne for reinforcing grade, all up $20/tonne.

Ilim’s March 1 price increases include $10/tonne for NBSK, to $680/tonne (net) CFR port; $30/tonne for BHKP, to $610/tonne (net) CFR port; and $20/tonne for UKP, to $405/tonne (net) CFR port.

As reported over recent weeks, major BEKP producers and a few North American BHKP producers have announced March 1 $35/tonne price increases for Asia, bringing the BEKP list price in China to $820/tonne. Al-Pac’s China price is $620/tonne.

Last week, Millar Western Forest Products Ltd. of Edmonton, Alberta, announced a $35/tonne March 1 list price increase for Asia for hardwood bleached chemi-thermomechanical pulp (BCTMP), as had Montreal-based Tembec Inc. several days prior. As previously reported, some softwood BCTMP producers have announced $20/tonne increases for Asia, bringing the list price in China of 75-bright softwood BCTMP to $570/tonne.

FOEX said that for the week ending Feb. 25, the NBSK price in China increased by $6.40/tonne, to $683.49/tonne. The BHKP price continued to move up, this time by $5.89/tonne, and closed at $606.04/tonne.

A market pulp consultant said some BSKP producers report that they have done all or most of their March business, at their announced $20/tonne increases. On the BEKP side, some producers said they have closed all of their business at the new price, “no questions asked,” with customers considering the current price “pretty cheap” and concerned about further increases.

A sales executive for a European pulp producer said Metsä Fibre is “doing a good thing” by actually announcing a price for China, saying ‘We are in this market, we are staying in this market.’ He added that it was “a bit brave” for the company to quote prices for both standard and reinforcing grade, “to compete with Canfor.”

He said his company is just beginning its March discussions in China and that he would be very surprised if the prices didn’t settled at the announced new levels. He added that his company would be “grateful” if customers could do without their March allocations. His supply is now limited, with his company having been “in no hurry” to come out of maintenance downtime late last year, while prices “were decreasing on a weekly basis,” he explained.

A North American pulp agent said his NBSK and UKP customers in China and South Korea expect prices to increase by $40-$60/tonne by the summer. Hardwood pulp prices got so low that “the whole situation turned around,” he said, adding that customers said that hardwood pulp is definitely tighter than softwood pulp. Softwood pulp is arriving from many regions, he noted. This includes from Europe, where idled paper machines have reduced regional demand and from which there are good freight rates to Asia. But he said supply is limited or balanced now, and he is not seeing cheap prices for it.

Starting in about November, buyers in China and South Korea worked down their inventories so much that they are now back in a buying mode, he said, adding that they have not been “bragging about a lot of inventory.”

He said buyers were concerned when his company had to limit the amount of UKP he could provide them, which he takes as a sign that the market has firmed. (There was reduced production of UKP because it was more profitable for papermakers to instead make, say, linerboard and sack kraft paper, he said.)

Buyers understand prices dropped to the bottom, that costs and freight rates are increasing, and that pulp producers “are not making any money,” he said, adding that although buyers are complaining about rising pulp prices, this dynamic is helping to support paper prices. At the same time, he said some printing and writing paper and specialty paper manufacturers are running at only 70%, and that those that converted from newsprint to lower quality printing and writing are finding it difficult to sell.

He mentioned that various tissue producer customers in China are adding 20% to their current capacity and that they definitely will be using 100% virgin fiber, including 50% softwood pulp, in order to achieve the quality they want.

China imports. Separately, as reported on March 2, China imported 1,167,552 tonnes of pulp in January, down by 16.7% from a year ago and by 15.0% from a month ago, according to China Customs Bureau statistics. BHKP imports in January of 481,964 tonnes fell by 11.9% month-over-month but increased by 3.8% year-over-year.

In January, China imported 454,255 tonnes of BSKP, down by 8.4% from December and by 21.8% from January 2011. (FOEX said the imports of NBSK for textile use last year may well have played a role in these comparisons.) January imports of Canadian BSKP, or northern bleached softwood kraft (NBSK) pulp, were 159,978 tonnes, falling by 21.9% from December and by 35.7% from January 2012.

BHKP imports in January of 481,964 tonnes fell by 11.9% month-over-month but increased by 3.8% year-over-year.

Imports in January 2012 of Brazilian bleached eucalyptus kraft pulp (BEKP) of 174,783 tonnes dropped by 26.9% month-over-month but grew by 46.7% year-over-year, while shipments from Indonesia of 138,402 tonnes grew by 10.0% month-over-month but fell by 18.0% year-over-year.

Korea market. Pulp producers are seeking price increases in March in South Korea, including $20/tonne for BSKP and $35/tonne for BEKP and other BHKP and for BCTMP, said a pulp agent in South Korea.

He said February hardwood pulp list prices rose in South Korea by $20-$30/tonne, depending on the grade, and that they are expected to keep increasing in March by the announced $35/tonne. There is little spot tonnage available now, so large paper mills are buying it from their contracted suppliers, he said.

He said BHKP prices in February ranged from $590/tonne for Indonesian mixed (net $550/tonne) to $610/tonne for Indonesian acacia and North American NBHK (net $570/tonne and $580/tonne, respectively). BEKP and SBHK were at $605/tonne (net $575/tonne for both), he said.

The announced BSKP increases of $20/tonne follow unchanged prices in February, of $745/tonne for NBSK, $735/tonne for BRKP, and $720/tonne for SBSK. He said BSKP is not particularly strong, and that the higher March pricing seems to be related to the BHKP moves.

Canadian BCTMP producers are strongly pushing price increases after having lost profits with the market decrease of last year, with announced price hikes of $35/tonne, he said. He added that European suppliers are eager to get more market share in Korea and so have been very aggressive in their pricing as they seek an alternative to the slackening demand from Europe and the dropping exchange rate of the euro, while taking advantage of lower freight costs. But he named a supplier that he said sold 4,000 tonnes in February at $45/tonne lower than others in Canada, in order to get the orders.

The list price of aspen 85-bright hardwood BCTMP was $610/tonne in February, up from $590/tonne in January and $575/tonne in December, he said. Softwood BTCMP pricing was $600/tonne in February, $580/tonne in January, and $565/tonne in December, he said.

He said the UKP list price was $610/tonne.

A second pulp agent in Korea had a similar report about February prices, although he said the SBHK list price in February was $610/tonne. As for BRKP, he said $735/tonne was also the price for Russian BSKP, and he put the SBSK price at $725/tonne, up $5/tonne. He said the net hardwood BCTMP price in February was $555-$565/tonne and that the net UKP price range was $590-$610/tonne.

The first agent said containerboard and kraft paper manufacturers still suffer from strong demand, especially from export markets and due to large inventory, and that they took another five to seven days of downtime in February. But he said they hope to increase paper prices to compensate for higher costs of such raw materials as UKP and OCC, as well as BHKP and BSKP, so they did not strongly resist the $10/tonne UKP increase. Overall UKP demand increased slightly month-over-month, he said.

Though papermakers say the higher pulp prices are not supported by actual paper demand, they recognize that they will help pull up paper prices, he said, adding that Korean papermakers are in fact seeking a 7% increase, or by $30-$50/tonne, in the local paper price and that they have achieved $20-$30/tonne at this point. He said February prices in the main export markets of the U.S. and Australia were unchanged and that the export volume is stable month by month.

Separately, he said Moorim Pulp & Paper plans to build a new printing and writing paper machine, which would increase local competition.

Looking at other grades in Korea, he said that the carton board market has recovered a bit, having hit bottom in December. The export price was unchanged in January but local producers are trying to raise the price by a minimum $20-$30/tonne in March. He said the average export price is about $620/tonne FOB.

Newsprint export volumes were about the same in February and buyers are still pressuring for price decreases, with producers trying to keep their prices unchanged at least for the second quarter, he said. Korean newsprint producers continuously seeking competitive raw materials as well as new paper grades, he said.

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