Softwood pulp pricing essentially at bottom in China, still moving down in North America, Europe; eucalyptus and other hardwood pulp pricing facing pressure in some markets

Diane Keaton

LOS ANGELES , June 24, 2012 (Industry Intelligence) – Softwood pulp prices have been weakening in June but hardwood pulp prices have generally held up better.

Bleached softwood kraft pulp (BSKP) prices have essentially bottomed in China and in recent weeks, net prices have been similar to those of bleached hardwood kraft pulp (BHKP). In Europe, BSKP prices are continuing to weaken. In North America, spot BSKP prices have fallen in June and key producers have announced a July 1 US$20 per tonne list price decrease for northern bleached softwood kraft (NBSK) and southern bleached softwood kraft (SBSK).

There are no announcements of BHKP decreases for July. BHKP, including bleached eucalyptus kraft pulp (BEKP), remains in tighter supply than that of BSKP. However, Chinese buyers have resisted announced higher prices of BEKP by finding volumes of other kinds of BHKP that are priced to sell. European BHKP stocks are limited, so buyers have been paying higher prices to get their supply. In North America, BEKP supply is limited, which has helped push through higher prices for that sector; domestic BHKP saw price increases in May and some carryover in June, but customers are expected to push for decreases in coming months.

The formal price news of last week was the announced July 1 $20/tonne NBSK decrease for North America, to $880/tonne, first by Domtar Corp., and then by West Fraser Timber Co. and Canfor Pulp LP. Also Domtar reduced its July 1 SBSK price by $20/tonne, to $840/tonne.

A sales executive for a European pulp producer said that unless demand improves soon in Asia, there could be some market-related downtime in North America and Scandinavia during July-August, and if so, “the pendulum could swing fast come September/October.”

Downtime update. Already there is news of some market and unexpected shuts. Because of heavy rains that caused widespread flooding, Sappi Fine Paper North America’s pulp and coated freesheet paper mill in Cloquet, Minnesota, took a precautionary shut on June 20. The company said it was not expected to come up until June 23 or June 24. Late in the week, a knowledgeable source said the restart might not be until June 25. The pulp side has a capacity of 410,000 tonnes/year, of about half maple and half aspen northern bleached hardwood kraft (NBHK); about 70% of the hardwood pulp produced in Cloquet goes to the market.

Another unexpected shut, as reported yesterday, was that of Northern Pulp Nova Scotia in Abercrombie, which went down June 21 because of a boiler problem and was expected to come back up the afternoon or evening of June 24, sources said.

Buckeye Technologies Inc. (BKI) announced on June 22 that it had repaired the No. 1 specialty pulp machine that was damaged on June 17 “due to the significant failure of a steam drum” on its No. 2 machine, where the company produces all of its fluff pulp. Both machines were idled the evening of June 17. Buckeye said workers had begun the plans and repairs for the No. 2 machine and that it would provide an estimated timeline this week. It said structural damage to the building has been addressed and that the specialty machine was to begin restarting on June 22.

On June 22, Industry Intelligence reported that Resolute Forest Products plans to lose 4,600 tonnes of fluff pulp production in a market shut at its 272,000 tonnes/year mill in Coosa Pines, Alabama, during the first week of July. Resolute is also taking an unspecified amount of market-related downtime, starting June 30, on a 125,000 tonnes/year lightweight coated (LWC) paper machine at its pulp and paper mill in Catawba, South Carolina.

As previously reported, Fibrek Inc., which is being acquired by Resolute, announced that it would take 12 days of downtime in a market shut starting June 23, losing 12,000 tonnes of production.

In its June 19 comments, FOEX Indexes Ltd. said the impact of downtime, partly because of boiler problems but mainly for maintenance and now also for market reasons, will be mainly felt only in July, and in actual numbers only when the July statistics are out in late August.

World 20. On June 21, the Pulp and Paper Products Council (PPPC) released the May “World 20” chemical market pulp statistics, showing that month-over-month producer stocks had risen by one day, to 33 days, that shipments increased by 2.0% year-over-year and by 2.9% month-over-month, and that the operating rate was 90%.

Stocks of softwood kraft pulp (SKP) and hardwood kraft pulp (HKP) each increased by one day, to 30 days and 36 days, respectively (standard calculation).

At 36 days of HKP, the market is still balanced, commented a sales executive for a BEKP supplier. “It is still level, not a market you can say is loose,” compared to, say, 40 days, he said.

He said he would agree with the customers who argue against further price increases, but on the other hand, he said he doesn’t agree that the price should come down. “I would say prices should keep where they are in the Europe and Asia markets for a couple of months and when producers recover some stocks, then prices could come down in August or September or even later in July,” he said. Although prices have risen by an average of $100-$120/tonne over recent months, he said he doesn’t expect them to fall by more than $40-$60/tonne. He then expects them to go back up in September/October as demand recovers and producers take maintenance downtime.

In a June 21 research note, RBC Capital Markets paper and forest products industry analyst Paul Quinn noted that despite the high level of pulp inventories that have built up in China, the overall pulp shipments to China in May “only declined 4.5%” from April.

Quinn said global softwood pulp stocks in May of 30 days were near balanced levels, which he described as ~30 days, while the 36 days of hardwood pulp stocks remained below balanced levels, which he described as ~38 days. He said the five-year average for May stocks is 26 days for softwood pulp and 37 days for hardwood pulp.

In his June Market Pulp Monthly report, industry consultant Brian McClay said pulp producers’ average monthly days of supply from 2000 through April 2012 was 30.25 days for softwood pulp and 35.40 days for hardwood pulp.

Middle East. A major buyer in the Middle East described BEKP availability as moderately tight. He said softwood pulp pricing has reached the bottom and that there will likely be additional pulp mill downtime. He expects buyers in the Middle East to start stocking up on softwood pulp soon, commenting that they should work to reduce their short-fiber stocks to compensate for the price difference. He added that he expects China softwood pulp purchases to pick up soon as pricing drops below that of BEKP.

July spot prices of both softwood and hardwood pulp will fall, he said. June prices are as follows, in tonnes (his expected July decreases are in parentheses): NBSK -- $620-$630 ($10-$20); SBSK -- $570-$580 ($10-$20); NBHK -- $540-$550 ($30), SBHK -- $520-$530 ($30); BEKP -- $570-$580 ($40-$50), fluff pulp -- $650-$660 ($10).

North America market. The June list prices in North America are unchanged from May but there have been some changes in spot prices. Spot tonnage availability overall is not in excess, sources said.

For softwood pulp, the list prices of $900/tonne for NBSK and $860/tonne for SBSK, are set to drop by $20/tonne in July, according to the announcements.

Sources have been reporting June spot NBSK prices in the low- to high $600s/tonne, with large-quantity buyers on the low end. Depending on the source, they describe prices as having fallen by, say, $20-$30/tonne, or $30-$40/tonne. And SBSK spot tonnage is priced in the mid-$600s/tonne for medium-quantity purchases.

An industry contact said he is seeing spot NBSK in mostly the $650-$660/tonne range, lower by $10-$40/tonne from May, depending on the starting point, but mostly down in the range of $20-$30/tonne. Considering the announced July $20/tonne list price decrease, he said spot prices are likely to fall by $20-$30/tonne in July. But he said producers don’t have NBSK backing up in their systems, so there isn’t a lot of spot tonnage available. “There may be a small amount, but it’s definitely not loose,” he said, noting that there have been various operational and market shuts.

The announced May price of BEKP for North America was $860/tonne, up $40/tonne. A sales executive for a Brazilian BEKP producer said in recent days that his company achieved a $30/tonne increase in May, to $850/tonne and that customers are resisting the additional $10/tonne for June. However, he said his company still hopes to get the full $860/tonne. As previously reported, some other producer sources have said their prices went up the full $40/tonne in May, while others said they went up $20/tonne in May, to $840/tonne and are holding in June, or that they got the additional $20/tonne in June, to $860/tonne.

In recent days, a major BEKP buyer reported no change for June after paying $20/tonne up in May, to $840/tonne. This buyer expects the price to come back down by about $10-$20/tonne, but perhaps not until August. “The tightness is what makes it different (from softwood),” the buyer said. “We are waiting to see how the market turns for softwood and how fast hardwood will follow.”

A source familiar with the BEKP market said there is only limited availability of spot tonnage in June. He expects BEKP prices to hold during the summer, and he described the BEKP market in North America as “totally separate from domestic hardwood.”

June list prices of North American-produced hardwood pulp are unchanged from May, when the price rose by $30/tonne, putting them at mostly $790/tonne for aspen and mixed grades of northern bleached hardwood kraft (NBHK), $800/tonne for maple-grade NBHK, and $785/tonne for southern bleached hardwood kraft (SBHK).

Sources this month have been said NBHK spot prices are mostly in the high $500s/tonne to the low $600s/tonne, mostly up $10-$20/tonne or unchanged, but in some cases down to these levels. Some spot buyers have reported that the full announced May increase of $30/tonne was implemented during May/June, while others said only part of it went through in May—the amounts varied—and stayed flat in June. (A market pulp consultant commented that cutting a price hike in half—that is, expecting to get $15/tonne in each of two months—does not give sellers much leverage in the second month.)

There are varied reports as to the amount of spot hardwood pulp available. In recent days, a medium-quantity buyer said someone from whom he doesn’t normally hear contacted him to offer spot NBHK. He expects the July price to drop by $20/tonne, followed by a further $20/tonne decrease in August. But he said suppliers aren’t discussing market issues or possible price drops, and he described current conversations as “normal behavior.”

Another source said spot NBHK pricing is down by about zero to $20/tonne, most commonly to $590-$610/tonne; he said May pricing was in the $610-$640/tonne range. But, he said, “The market is actually better than a lot anticipated it would be.” He said there isn’t an excess of spot tonnage being offered, contrary to what he had expected as producers came out of their maintenance outages. It helps that demand in North America has been much better than a year ago, he said, but added that it has slowed in the last couple of weeks. He expects July pricing to drop by another $10-$20/tonne, but said, “I don’t see a lot of producers going beyond $570. I don’t think producers want to go much lower than that.”

Separately, the PPPC released the May printing and writing paper statistics for North America on June 21, and they were “slightly positive,” with an uptick in coated markets and decelerating declines in uncoated markets, wrote RBC Capital Markets analyst Paul Quinn in a research note on the same date. Shipments fell by 2.1% year-over-year and demand fell by 2.2% year-over-year, led by uncoated groundwood papers. The overall operating rate (shipments divided by capacity) was 89%, compared to 86% a year ago.

FOEX noted in its June 19 commentary that pulp production losses have supported producers’ efforts to keep their contract price levels intact and it said its NBSK index for the U.S. remained flat at $900/tonne for the week ending June 16. But FOEX said there is pressure on prices and on the spot market and that prices have fallen more on the southern softwood and hardwood pulp grades, widening the price differential between the northern and southern grades.

FOEX said the re-weakening of the U.S. dollar against the euro two weeks ago is reducing the earlier widened net revenue gap between export sales and domestic shipments. (The value of the euro as of this writing is US$1.25382.)

Europe scene. Some sources are reporting that a quantity of NBSK business in Northern Europe has closed at $825/tonne, falling from the prevailing May price of $840/tonne, which itself was down by about $10/tonne. This week some customers are also saying that the price in Northern Europe has dropped to as low as $810-$820/tonne. In May, the price had already dropped to that level in Italy, or down to $800/tonne.

A market pulp consultant said a gross price of $800/tonne, with a 17%-20% discount, plus freight of $40/tonne or more, could put a few, but not many, producers under water. But he said a gross price of $760-$770/tonne would hurt nearly every producer. “Certainly it would be very painful for the Canadians,” he said.

A sales executive for a European pulp producer described the price scene as “quite muddled.” The NBSK price development has been “de-coupled from the supply side fundamentals that include a normal stock level with producers and low consumer inventories elsewhere than (in) China,” he said. But, he added, “I guess the demand side has been too weak as of late.”

BEKP supply in Europe remains fairly snug. The announced BEKP price for Europe in May was $800/tonne, up $40/tonne, which producers have implemented or are still trying to fully implement. This followed a March price increase of $30/tonne, to $760/tonne, all in contrast to pricing as low as $640/tonne in December.

A sales executive for a Brazilian BEKP producer said his company’s May price in Northern Europe was as high as $790/tonne, up $30/tonne, but that it is unlikely that it will reach $800/tonne in June. This month, buyers have been resisting prices more than in May, he said, adding, “It seems that customers can’t take the price any more.” But at the same time, customers “are struggling” with low BEKP stock levels and his company doesn’t have the volumes it needs deliver in June, he said.

Separately, some sources noted that the recent strike at the Santos Port in Brazil, the country’s biggest, has delayed a number of vessels, which were mainly heading to Europe and Asia.

As a result of the strike, the vessels will arrive in European ports all at once, probably in early July instead of late in June, at around the time paper mills are taking their summer shuts, which last from one to three weeks, the BEKP pulp sales executive said.

The market has become complicated, he said. “We need to manage to comply with customers’ needs and not be so extreme with prices and have some flexibility, but at the same time, we are tight on stocks,” he said. However, he noted that because prices of NBSK and BEKP are about the same, some customers “are starting seriously to think about changing their furnish” to softwood pulp if they are able to do so.

FOEX said the NBSK price in Europe for the week ending June 16 fell by $1.55/tonne, to $834.36/tonne. With the euro strengthening against the U.S. dollar in that week by 1.0%, the price in euros fell by €8.04/tonne, to €662.40/tonne.

FOEX said the BHKP price fell by 20 cents/tonne, to $785.83/tonne, while in euros, it dropped by €6.57/tonne, to €623.87/tonne.

In its June 19 comments, FOEX said downside price pressures persist on the softwood pulp market and that the number of spot offers appears to have increased, most probably reflecting the slowing down of purchasing activity in China through May.

The BHKP market conditions remain better than those of softwood, in spite of the normalized price differential between NBSK and BEKP, FOEX commented. It said the factors include the increased purchases of market pulp, the switches of supply to softwood or to dissolving pulp, and the fact that there has been relatively less hardwood than softwood pulp released from captive shipments into pure market pulp following the closures of paper machines. Also FOEX noted that the volume increase in China was so big in January through April that it compensated for the demand declines in other markets.

Separately, the Utipulp and Europulp statistics for May, released on June 19 and June 21, respectively, underscored reports of limited stock on hand in Europe.

Utipulp data showed that European woodpulp consumers’ stocks decreased month-over-month by 16,641 tonnes, or 2.5%, to 649,543 tonnes, which reduced their stocks in days to 20, down from 21 days during the previous three months. The stocks dropped month-over-month for BHKP and BSKP. However, May consumption compared to a year ago decreased by 28,393 tonnes, or 2.7%, to 1,023,367 tonnes.

Europulp data showed that European woodpulp port stocks decreased by 35,173 tonnes in May over April or by 3.3%, to an estimated 1,017,951 tonnes. The most recent high was in September, at 1,460,219 tonnes. The May 2012 stocks also fell by 10.4% from those of May 2011.

China scenario. For June, Canadian NBSK producers dropped their list prices by $50/tonne, to $660-$670/tonne for standard NBSK and $680/tonne for reinforcing-grade NBSK.

But a market pulp consultant said in recent days that for the last two weeks, he has not been hearing that any business was done at the $660-$670/tonne range for standard NBSK and that instead, most of it appears to have been conducted at a gross price of $650/tonne. He said the local price in China is the equivalent of $600-$630/tonne, with Canadian NBSK on the high end and probably Russian NBSK on the low end.

The bottom price for BSKP has probably been reached, given that Chinese customers have been buying at these price levels, he said. Looking at hardwood pulp, he said volumes of BEKP and other BHKP have been very much on the low side in June, as certain major BEKP producers refused to move off of their announced May price of $700/tonne, which was up $30/tonne, and also because domestically produced BHKP is available in China.

A sales executive for a Brazilian BEKP producer said his company’s May price was $680/tonne, up $10/tonne, but that customers are pushing for decreases of $20-$30/tonne, to $650/tonne, for June, especially since local hardwood pulp prices are about $610-$620/tonne, he said. And he noted that there is additional pressure on hardwood pulp pricing from the softwood pulp market, where prices are roughly $40-$50/tonne below the price of BEKP.

This week the Chinese customers will decide whether to buy and in what quantities, he noted, adding that that the end of May, they did go ahead and make purchases. Whatever happens in China will affect the rest of the world markets, he commented.

A sales executive for a European pulp producer said that with all of the downtime being taken and the negative price gap between NBSK and BEKP in China, there might soon be increased Chinese activity. But he said this is not a sure thing.

For the week ending June 16, FOEX said, “the downward slide in prices continues,” with the NBSK price in China decreasing again, this time by $2.41/tonne, to $662.00/tonne.

It said BHKP inched downwards by 63 cents, closing at $665.05/tonne.

“With the downtime period in the Chinese paper industry starting in a few weeks’ time and with some extra pulp still left in the consumer inventories, the demand for softwood pulp remains muted, while waiting for the advantageous price ratio to hardwood pulp to start impacting purchasing patterns,” FOEX commented on June 19. FOEX added that on the supply side, the downtime at some Canadian mills and especially at Ilim Group’s Ust-Ilimsk mill in Russia, announced for July, will take some of the supply pressure off over the coming weeks.

FOEX said the drop of softwood pulp prices below those of hardwood pulp along with increases in local chemical and mechanical hardwood pulp supply have increased the downside price pressures on hardwood pulp shipments. But it said that so far, at least, pulp producers have been relatively successful in keeping the import prices of BEKP and other hardwoods at or close to the May level. However, domestic prices are reported to have shifted slightly lower, FOEX said.

“Also in the Chinese market, high pulp consumption by the tissue sector is one of the key positive drivers,” FOEX wrote. “It has, in fact, a double impact as the new, substantial tissue capacity both reduces the local market BHKP supply, due to integration, and adds to the market pulp import demand.”

Cotton angle. High cotton prices were much in the news a year ago, leading a surge in demand for dissolving pulp (DP) in China’s textile sector. The price of cotton hit an all-time settlement high of $2.1515/pound in March 2011. Then, due to overproduction and a sagging economic outlook, the price dropped to 66.10 cents/pound early in June, its lowest level since November 2009, The Wall Street Journal (WSJ) reported in its edition of June 16-17, 2012.

The recent low prices kicked off a surge of buying from China, the world’s top cotton-consuming country, which bought nearly 95% of the net total of 795,700 500-pound bales of cotton that the U.S. Department of Agriculture said it sold for export in a June 14 report, the WSJ reported on June 20, and in the previous week, China purchased 81% of the 129,000 bales that the agency reported sold for export. The China purchases, likely to be added to the country’s strategic reserves, are putting additional upward pressure on prices, the WSJ reported.

Meanwhile, as previously reported, DP prices in China have been falling. In his June 2012 Market Pulp Monthly report, consultant Brian McClay said they were already below $1,000/tonne, “well below their cash cost levels,” and that this might lead several mills in China that were converted to DP production over the past six months to revert back to paper pulp.

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