Pulp prices holding steady to increasing in major markets, with softwood pulp in stronger shape than hardwood pulp and November price-increase efforts so far more successful in North America than elsewhere

Diane Keaton

LOS ANGELES , November 18, 2012 (Industry Intelligence Inc.) – The global pulp market is holding steady in November, with price-increase efforts stronger in North America than in Europe and China.

And softwood pulp has more strength than hardwood pulp. “The narrow price differential has increased the share of softwood in some grades of paper, especially in the Asian markets,” FOEX Indexes Ltd. wrote in its Nov. 14 remarks.

FOEX added that this and “the still fairly solid growth in fluff pulp,” which is part of the market bleached softwood kraft pulp (BSKP) statistics, have helped softwood pulp demand to grow faster than that of bleached hardwood kraft pulp (BHKP) this year.

“In spite of the increased supply of BSKP from earlier integrated sources following the paper machine closures, producer inventories of softwood pulp are low and [the] supply/demand balance at present again [is] slightly better than in BHKP,” FOEX wrote.

Pulp players noted that global economic forces are strongly affecting the current price and demand climate.

A sales executive for a major Canadian northern bleached softwood kraft (NBSK) pulp producer said he is “not pessimistic” about market conditions, given the statistical results that show reduced inventories and port stocks as well as seasonal demand. But, he said, “I am cautious about the economy.”

And he said he expects another global NBSK price announcement for December, probably of $20/tonne. (The question for China is what the base will be, he said.)

There “is not spectacular growth in the U.S., but it is not in a recession” and commodities (not just pulp) are in positive territory, he commented.

As well, China’s economic situation appears to be improving with a “soft landing,” he noted. (As Industry Intelligence Inc. reported on Nov. 14, economist Andrea Boltho of the University of Oxford said in a presentation during London Pulp Week that China is unlikely to have a hard landing, given that this is a year of political change and also that China has hardly any debt.)

But the NBSK source noted that Europe is technically in a recession. “What’s most critical is the euro,” he said.

He said his company would continue to push for price increases. “Our official position is that our prices are moving up,” he said. “We are not taking additional spot (tonnage), we are getting all of our contractual tonnes, and our inventories are at or below average, so we need to be careful at the end of the year. We want to keep inventories on the low side,” he said.

NBSK producers are also encouraged that supply has tightened because of some production-related problems among several Western Canadian producers. As reported today, Mercer International Inc.’s Celgar Pulp Mill in Castlegar, British Columbia, will be taking downtime Nov. 24 to Nov. 29 because of an unexpected digester issue, losing 8,000 tonnes. The mill also had an unexpected 8,000 tonne loss in September.

Nevertheless, a market pulp consultant said it doesn’t make sense to try to raise softwood pulp prices in December. “There are a lot of macro things going on,” he commented.

And paper and forest products industry analyst Paul Quinn of RBC Capital Markets said in a Nov. 18 research note that a further NBSK price recovery is tenuous given the recent and pending capacity additions, excess fluff swing capacity in North America, and formerly integrated capacity in Europe that is temporarily being sold into paper-grade markets.

RBC has an average list price for North America of US$875/tonne in 2012 and US$900/tonne in 2013.

A pulp sales source said he expects softwood prices to show little movement in the first part of 2013, while perhaps increasing during the second half of next year. This will come about because of likely further shuts of paper capacity by integrated producers, thus resulting in additional softwood pulp output for the market, he said.

As for hardwood pulp, he said the new bleached eucalyptus kraft pulp (BEKP) tonnage capacity that is coming on over the months will need to be offset by BHKP closures or conversions elsewhere, as well as by increased demand. He said he doesn’t expect it to be offset.

But the aforementioned market pulp consultant said the effect of the new hardwood pulp capacity would not hit for another year, as he put it, “a long way out.” Even in China’s oversupplied paper market, people are still making paper and using pulp, and “more (paper) is being consumed all the time,” with demand on the increase (along with supply), he commented.

In his November 2012 Market Pulp Monthly, industry consultant Brian McClay said that between June 2012 and mid-2013, approximately 2.8 million tonnes of market pulp capacity, or around 5% of the world’s total, will have been closed, converted to dissolving pulp or integrated to paper production, all of which will offset new supply. And he said several major pulp mill projects would be starting up later than publicly announced.

Eldorado startup. Eldorado Brasil’s new 1.5 million tonnes/year started up Nov. 15. A source familiar with the operations said the mill is to make use of one of its two driers in this early stage, and that when the drier was tested on Nov. 14, using purchased pulp, it ran “flawlessly.” On Nov. 15, wood was to be put in the digester; after four days, slurry is to enter the headbox and to go from there to the drier, he said.

The first vessel is expected to be loaded at the beginning of December.

North America direction. The announced Nov. 1 $870/tonne NBSK list price for North America, up $20/tonne, appears to be going through. Producers also announced a $20/tonne increase for southern bleached softwood kraft (SBSK), to $830/tonne.

For the week ending Nov. 10, FOEX said the NBSK pulp benchmark increased $9.95/tonne, to $865.00/tonne; thus, most of the $20/tonne price hike to $870/tonne, has already been implemented.

The supply/demand balance “is OK but not extra tight and several producers seem to find at least some additional (or spot) tonnage, if needed,” FOEX said in its Nov. 14 comments.

North American spot NBSK buyers have reported prices moving up from $10-$30/tonne in November, depending on the starting point. Not all spot tonnage sellers have pushed for the full $40/tonne over October-November (producers announced $20/tonne list price hikes for each month).

As previously reported, some start-up tonnage is being offered this month in the $590-$595/tonne range, while regular tonnage is being sold in the low $600s/tonne to $650/tonne. In recent days, one of the buyers said he hasn’t had any calls offering special spot deals. He added that some off-grade SBSK has moved up about $20/tonne.

Though NBSK producers may be hoping to keep the momentum going, especially with the Chinese New Year coming up soon (it starts Feb. 10) by announcing a December increase, the aforementioned buyer doesn’t see it happening unless October producer inventories decrease significantly. “If there’s a three-day drop, they will probably announce,” he said.

Some North American spot northern bleached hardwood kraft (NBHK) pulp buyers have said in recent weeks that their November price went up $10/tonne. The range is still from the low $500s/tonne to the high $500s/tonne, depending on the deal.

A U.S. NBHK buyer said there’s a little less supply this month but he named a mill that had had some unexpected downtime due to a lime kiln issue and he said he was still able to get his usual amount from it, as well as his orders from other suppliers. Noting the “huge” range of prices along with suppliers saying they need to get their price up, he said there is talk among suppliers about raising prices in December.

As well, suppliers have been concerned about the wide price range between North American-produced hardwood pulp—the list is about $735-$750/tonne--and BEKP, listed at $830/tonne. (BEKP producers announced an Oct. 1 $30/tonne, to $830/tonne; the price ended up being $820/tonne, with some also selling at $830/tonne).

A sales executive for a BEKP producer said there is more demand now than people had anticipated. Though Jari Celulose SA doesn’t ship to North America, the recent announcement that it will close at the end of January is having an effect around the world because its buyers elsewhere are looking for alternative sources of tonnage, the BEKP source noted. (Most of Jari’s output is shipped to Europe.)

Europe expectations. While NBSK producers managed to achieve their $790/tonne October price, generally up $20-$30/tonne, their announced Nov. 1 price of $820/tonne is more of a challenge, producers and other sources have been saying.

“I can’t believe the price will go straight to $820, with the euro coming off,” said a market pulp consultant. He noted also that contractual discounts have been rising.

There are widespread reports of discounts in the new contracts of as high as 20% or more for both softwood and hardwood pulp in both North America and Europe. The discounts are generally up about 2%, though in some cases it is less and in others it is more.

A sales executive for a BEKP producer said that in meetings during London Pulp Week, “no one was talking about a top-line price.” But he said people were pushing for deals and that he was not agreeing to the 20% or so discounts, which merely “live in people’s imagination.”

FOEX said that for the week ending Nov. 10, the NBSK index in Europe increased $6.86/tonne, to $792.32/tonne. The euro weakened again in that week, this time by 1.2%, so in euros the index increased €12.92/tonne, to €624.17/tonne.

FOEX said the BHKP price moved up, too, by $2.08/tonne, to $765.40/tonne. In euros it increased €8.94/tonne, to €602.96/tonne.

China trends. Sources said pulp-purchasing activity remains slow in China this month and that buyers are resisting price-hike efforts.

A major Chilean bleached radiata kraft pulp (BRKP) producer achieved its announced $10/tonne hike increase, to $640/tonne (net), sources said. Russian pulp is still at $620/tonne at the port, unchanged from October, some sources said.

The NBSK price announced by a few producers of $690/tonne for both commodity grade (up $30/tonne) and reinforcement grade (up $20/tonne) is not going through, and $10/tonne might be as much as they get, sources said. Also, in general, November business hasn’t yet closed for NBSK, they said.

“There’s not a whole lot of buying activity” for NBSK, said a market pulp consultant. “I can’t find anyone who has sold any. The Chinese don’t want to pay $30 or $20 (more).” The gap between BRKP/Russian pulp and NBSK is the reason NBSK producers “are not getting $690,” he said.

A sales executive for a Canadian NBSK producer said that in October, all of his company’s contracts came in during the second half of the month, and that he expects the same for November.

“The price is moving up and at a moderate level,” in increments of $20/tonne, rather than of $40/tonne, he said, adding that given the additional softwood and hardwood capacity that has come on, this is what his company expected.

Another such source said it isn’t clear if the latest round of price-hike plans is a given, but he said there is “little discussion/pressure” from buyers.

He said traders indicate they have normal stocks of softwood and that he expects the October “World 20” statistics to show another reduction in producers’ days of pulp supply.

He said the tissue market in China “is doing very well as always.” As for the paper market, it continues to be oversupplied, with machines not running full in many cases, as has been the case for a few years, he commented.

For the week ending Nov. 10, FOEX said the NBSK index in China inched down by 29 cents, to $653.66/tonne, while the BHKP index inched up by 91 cents, to $642.99/tonne.

Noting that opinions vary widely as to the level of Chinese pulp stocks, FOEX wrote in its Nov. 14 comments that claims of high and low stocks may both be partially right. Several buyers have more limited stocks at their paper and board mills but the stocks at ports or those on board of ships on their way to Asia may well have risen instead, FOEX said.

“The success seen in the recent limited price increase initiatives appears to be tough to continue as the buyers have put up renewed resistance as also shown by the development of our benchmark values over the past couple of weeks,” FOEX wrote.

Hardwood kraft pulp demand growth continues to be limited by the increase of hardwood bleached chemi-thermomechanical pulp (BCTMP) from local sources, largely now integrated but with also some market pulp sales, FOEX wrote in its comments.

Also, an increasing share of imported free market pulp goes to tissue producers who are, at present, trying to resist the producers’ price hike initiatives as well as the intake of pulp, possibly temporarily, following implementation of recent other efforts, FOEX said.

Dissolving pulp angle. In his November Market Pulp Monthly report, industry consultant Brian McClay said there is still the possibility that mills that have converted from paper grade to dissolving pulp (DP) production will swing back to paper pulp, especially now that prices for open-market sales of commodity DP in China have declined to around $900/tonne.

But he said that discussion during London Pulp Week with several non-Chinese producers suggest that no such ‘strategic’ decisions are imminent because they want to avoid the potential negative consequences of being seen as though they are not committed to the DP business.

McClay said DP prices in China are unlikely to fall much further because demand for wood-pulp based DP could increase as
it gains market share from the higher-priced cotton linter pulp.

The price spread between lower-priced DP and cotton linter pulp, of which about 1 million tonnes/year are produced in China, “is approaching levels—around 25%--at which some substitution has occurred in the past,” McClay wrote.

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