Pulp markets holding their own in February, with softwood and hardwood demand good enough in major regions for prices to remain unchanged or increase some more
February 10, 2013
(Industry Intelligence Inc.)
– Softwood and hardwood pulp prices are unchanged to moving up in February in major markets and could further solidify in March, resulting in a solid first quarter for producers.
At the same time, prices are still too low for some producers to profit. And there is concern among producers that the ensuing quarters of 2013 could be difficult, due to increased pulp supply coming on this year.
There have been a few price announcements for February in addition to those from the previous week. Brazilian bleached eucalyptus kraft pulp (BEKP) producer Suzano Papel e Celulose SA reiterated its previously announced January prices, including US$700/tonne in China, $800/tonne in Europe, and $850/tonne in North America. Also Tembec Inc. announced a high-yield pulp $20/tonne increase for China, following Millar Western Forest Products Ltd.’s earlier announcement.
Eucalyptus output. Looking at the various BEKP production developments this year, a BEKP sales executive said, “This year there’s going to be much less pulp than everyone envisioned.”
As reported on Feb. 6, construction of the 1.3 million tonnes/year Montes del Plata BEKP mill project in Punta Pereira, Uruguay, remained suspended following a Jan. 29 accident in which a contract worker fell to his death, which led to a labor strike. The project is a 50-50 joint venture between Chile’s Celulosa Arauco y Constitución SA (Arauco) and Finland’s Stora Enso Oyj.
Stora Enso said in its quarterly earnings report released Feb. 5 that the project “is progressing and currently more than 80% of the construction work has been completed. The mill is expected to start up approximately mid-year 2013.” In his most recent Market Pulp Monthly report, market pulp consultant Brian McClay showed the mill starting up in the third quarter of this year, whereas he had previously said it would be in mid-2013. McClay’s report was published in early January, before the accident.
Meanwhile, the new 1.5 million tonnes/year Eldorado Brasil mill in Três Lagoas, Mato Grosso do Sul state, which began operations in late November, is still gearing up, and sources in some major markets have yet to see tonnage from it (Europe), or first-quality tonnage (Asia). The company said it shipped 2,500 tonnes to Mobile, Alabama, in the first full week of January.
The limited tonnage from Eldorado so far, along with the mid-January shut of the Jari Celulose SA mill in Brazil, has helped keep overall BEKP supply relatively balanced, said sources, who added that they expect to see much more supply on the market in the second quarter.
As reported Feb. 7, Eldorado has contracted to supply Brazilian papermaker and personal care company Fábrica de Papel Santa Therezinha SA (Santher) with more than 20% of the pulp Santher will use for its paper production. This includes providing it with about 50,000 tonnes in 2013.
Eldorado said in a press release about the deal that it has already signed contracts with leading players in national and international markets, with 45% of its production destined for Asia, 40% to Europe and 15% for the Americas, including Brazil and the U.S.
Also of note regarding BEKP supply, CMPC Celulosa SA’s 1.305 million tonnes/year Santa Fe mill in Chile is taking an extended shut in April, amounting to 20 days or more, including for work that was postponed from last year, according to a knowledgeable source.
North America angle. Looking at northern bleached hardwood kraft (NBHK) in North America, two aspen-grade NBHK suppliers, Alberta-Pacific Forest Industries Inc. and Resolute Forest Products Inc., announced Feb. 1 domestic prices of $790/tonne, up from the announced Jan. 1 price of $785/tonne, up $30/tonne, by various producers. However, sources generally said January prices instead rose from $10-$20/tonne. An executive for a supplier that did not make a February announcement said his company is “sticking to the $785 this month.”
NBHK spot buyers said they are seeing little or no change in February prices compared to January, saying that they are mostly in the high $500s/tonne-low $600s/tonne. Some mentioned that their discounts off of the list or gross prices have increased this year.
One of the NBHK buyers added that his spot southern bleached hardwood kraft (SBHK) price was $640/tonne.
The overall pulp market hasn’t changed much because pulp mills have to run in the cold, printing and writing papermakers are struggling, and higher tissue capacity is pushing prices down, he said.
Another NBHK buyer said he was offered $560/tonne for some spot tonnage in February, whereas in January, he wasn’t receiving offers as good as those he could get with his contractual discounts of 25%-26%.
He said he has been approached this month by two BEKP suppliers for spot tonnes, in the $650-$660/tonne range.
Sources said tonnage from Sappi’s Cloquet, Minnesota, NBHK mill is being priced on the higher end of the spot price range, given that the company will no longer be producing it there as of the end of March, as it converts the mill to dissolving pulp. This could serve to firm up prices by the end of the quarter and to some degree the mill’s exit from NBHK will also cut back on exports from North America, a long-time NBHK player commented.
He added that this is “the slow time of year” for printing and writing paper and that inventories “are coming up as they always do.”
An executive for a specialty food-related papermaker reported higher discounts off of list prices for the spot tonnage he regularly buys. Effective in January, he has had 25% discounts versus previous discounts of 21%-22%, he said, adding that the discounts were based on the announced prices of $900/tonne for NBSK and $785/tonne for NBHK. He said his February spot NBSK price is $640-$670/tonne, unchanged from January, when they rose $15/tonne. He said his NBHK spot prices remained at $580-$640/tonne in February, having risen $10/tonne in January.
He said his specialty paper business has picked up some, due to some loss of competition and perhaps some improved economic indicators. “There’s a little bit of uptick all around, he said. But, he added, his operations still are not running seven days a week and his company produces only to orders, but has managed to be profitable. He said his pulp demand has dropped about 15% since last May. And he said if he pushes his customers on prices, he loses business, so it’s a “vicious circle.” Meantime, he is looking to produce new kinds of specialty paper in order to boost business.
As for bleached softwood kraft pulp (BSKP), a few producers have announced unchanged February list prices for North America, of $900/tonne for northern bleached softwood kraft (NBSK) and $860/tonne for southern bleached softwood kraft (SBSK).
Pulp producer and buyer sources reached in recent days said they don’t disagree with published reports saying that the January NBSK price was $890/tonne, rather than the announced $900/tonne, which would have been up $30/tonne. A producer noted that he had doubted from the start that the price would rise by the full $30/tonne in January and that he had expected $20/tonne.
For the week ending Feb. 2, FOEX Indexes Ltd. said the NBSK price in the U.S. rose by $2.56/tonne, to $889.30/tonne, and RISI Inc. said the January price was $890/tonne.
Sources generally said they expect NBSK to reach $900/tonne in February, up $10/tonne. But buyer sources reported little or no change to their spot NBSK prices in February compared to January, saying they were mostly in the $620-$670/tonne range.
A spot NBSK buyer said his February price fell a bit after he demanded a higher discount.
A larger-scale buyer said his NBSK spot prices in February were the same as in January and December, in the low $600s/tonne, adding that he has heard a range of $615-$620/tonne to $660/tonne.
In recent months he and other market players have named several companies selling in the low end of the spot price range. Noting that when list prices rise or fall, spot prices have usually already led the market commensurately up or down, he said it is strange that list prices are currently rising while spot prices are static.
But he said he expects the full $900/tonne NBSK list price to be in place in February, “much to my disappointment,” adding, “All of the suppliers say the $900 is firm for them.” In January, he said, his company was invoiced the full $900/tonne until RISI showed $890/tonne; because his contracts are tied to RISI, the $10/tonne difference was credited back.
Terrace Bay update. Aditya Birla Group’s NBSK mill in Terrace Bay, Ontario, which restarted in October, is producing 800-1,000 tonnes/day, achieving its targeted 1,000/tonnes/day more often than not, said a knowledgeable source.
Pulp players have been noting that the additional tonnes on the market are affecting domestic prices. A buyer said some other producers are doing “what they have to do” to be competitive with Terrace Bay.
But the aforementioned knowledgeable source said that although Terrace Bay has lately been selling spot tonnage in North America at $620/tonne, it has also sold it in the mid-$600s/tonne and as much as the low $700s/tonne. He added that varying freight costs play a role in the company’s spot prices. (December spot prices were in the $580-$600/tonne range.)
He said the company is trying to sell two-thirds of the Terrace Bay output to the domestic market and that it has signed three or four contracts with North American buyers totaling 100,000 tonnes/year—the contracts are for one year or two years—and that it is targeting 160,000-200,000 tonnes/year in domestic contracts, with hopes of limiting its spot market exposure. For now, along with the current approximately 15,000 tonnes/month it sells domestically, it also ships 4,000-6,000 tonnes/month to China.
Its 2013 output is targeted at 335,000 tonnes, said the source, adding that in its best year, the line, which has a rated capacity of 350,000 tonnes/year, produced 337,000 tonnes. The mill is known for its high-quality black spruce-based pulp.
Aditya Birla plans to start dissolving pulp production at Terrace Bay in 2016, not 2015 or the sometimes-rumored 2014, the source said. The company would use the pulp internally “If the Birla Group doesn’t need all that dissolving pulp, it could run kraft, too,” he added. A side-by-side conversion is planned, so there would be the equipment to do both, he said, adding, “It’s an option at this point.”
Birla, a $38 billion company, acquired Terrace Bay for C$2 million, including C$27 million less C$25 million forgiven by the province. So even though the mill, which is one of the highest-cost in the world, will lose money during its planned three years of NBSK production, it made financial sense for Birla to acquire it rather than to build a new a mill, the source said. Nevertheless, he said, in the interim, the company wants to limit as much as possible its losses on NBSK.
Glatfelter machine. Glatfelter said in its Feb. 7 quarterly results that it would be taking down a paper machine in late February to complete an upgrade, with the expectation of restarting it in May.
The upgrade was announced in October 2011, as the company looks to expand its footprint in the tea and single serve coffee markets, commented paper and forest products industry analyst James Armstrong of Vertical Research Partners in a research note.
Armstrong said Glatfelter believes that the end market is strong, and that his firm thinks Glatfelter will be able to place most of the tons within a quarter or two of the machine coming online.
Europe picture. A sales executive for a European NBSK producer said he expects the price in Northern Europe to go to $840/tonne in February, up $20/tonne, and in Italy for it to be $820-$830/tonne. He noted seasonal pickups for printing and writing customers selling paper for spring business, before an expected slowdown in May/June.
Another supplier said he expects the February NBSK price to be $830/tonne in Northern Europe, up from $810-$820/tonne, and in Italy for it to be $800-$815/tonne, up at least $10-$20/tonne, depending on the customer.
Demand is fine and stocks are relatively low, but it’s “a strange situation” that some players don’t appear to be factoring the rapid currency changes into their pricing, he said. The euro’s decline to US$1.22 last August forced down the price, whereas in the ensuing months as the euro has strengthened, the prices haven’t risen commensurately, he said. “I’m puzzled why there is a lack of understanding that currency is destroying the mill nets,” he said.
Even so, he expects the first quarter to be positive overall. “There’s nothing fundamentally wrong with the business,” he said. “Demand is always a little slow at the beginning of the year. We’re observing the markets to be fairly normal.” As for Europe’s ongoing financial issues, he said he expects there to be a continued “slow and painful” recovery.
A sales executive for a South American BEKP producer said there is a “good chance” that producers will get their earlier-announced $800/tonne price in February, which he said would be up $10/tonne from where it settled in January. He said he hadn’t expected the announced January $20/tonne hike to have any chance of success and was surprised to find customers receptive to a $10/tonne hike.
A buyer said his company doesn’t expect the $800/tonne BEKP price to go much higher in the coming months. And he said his company “is fighting over the last $20” of the announced $840/tonne NBSK price. His company has a “fairly bearish” forecast regarding NBSK and “There’s not a lot of upside yet,” he said, commenting that weak paper demand is standing in the way of higher pulp prices. “The only offset is if the euro gets weaker,” he said.
For the week ending Feb. 2, FOEX said the NBSK price in Europe dropped back $2.33/tonne, to $816.68/tonne. With the euro strengthening by 1.3% against the U.S. dollar from the previous week, the index in euros fell €9.51/tonne, to €698.56/tonne.
Today the euro was at US$1.33734, having weakened from US$1.36271 a week ago. The euro had tumbled Feb. 7 after European Central Bank President Mario Draghi told reporters that policy makers would watch out for any impact on the inflation outlook, should the euro continue to rise, but on Feb. 8 it stabilized against the dollar as market focus returned to signs that the euro-zone economy was stabilizing, Dow Jones reported on Feb. 8.
FOEX said the bleached hardwood kraft pulp (BHKP) price in Europe increased $1.60/tonne, to $785.68/tonne. In euros, it lost €6.30/tonne, dropping to €575.84/tonne. “The weaknesses in the coated and uncoated woodfree paper consumption and pricing have been the key drivers in preventing the announced pulp price increases to be fully accepted in January,” FOEX wrote in its Feb. 5 commentary.
China market. The Lunar New Year began Feb. 10. A sales executive for an NBSK producer said there was good demand from Chinese papermaker customers before the onset of the holiday and that pricing would be negotiated afterward.
He said there has been a small increase in paper prices in China but that the short-term paperboard situation is “not so good,” with almost 2 million tonnes/year coming on the market later this year from Asia Pulp & Paper Co. (APP) and Shangdong Bohui Paper Industry Co.
He said China’s economic picture is improving and that its new government will have “real influence” after the Lunar New Year, coming officially into power in March.
Another NBSK producer source said that a week after settling January prices, a Chinese customer offered $10/tonne up for February, rather than the announced $20/tonne. He said his company declined, saying it would come back after the New Year to negotiate. “We’re going to push for $680,” he said.
He said tissue makers in China are running well and appear to need pulp. They are “even inquiring about spot if we have it,” he said. But he said his company doesn’t have it because it needs to build inventory in advance of its spring maintenance outage.
Another softwood pulp supplier commented that some pulp producers are selling roll pulp rather than fluff pulp in Asia and that there is still stock being sold by traders.
As of Feb. 5, Arauco in China had finished all of its February business in China at its new prices of $650/tonne (net) for BRKP and $580-$590/tonne (net), both up $20/tonne, said a knowledgeable supplier source. He also said Arauco’s BEKP business was finished unchanged in February at its January $700/tonne list price, describing it as difficult to achieve in January, but going through in February “without much problem.”
As previously reported, other suppliers have variously said that January gross prices of South American-produced BEKP were $650-$655/tonne, $660-$670/tone, $670/tonne, and $670-$680/tonne. They said gross/net prices in January were unchanged to $5/tonne higher, unchanged to $20/tonne higher, $10-$20 higher, and $20 higher.
A supplier who described his January range as $660-$670/tonne (up $20/tonne from December) said that for February in China, he expects “at least” a $10-$20/tonne increase and that he is hoping for the price to reach $690/tonne. But he said there is a narrow pricing band of $600-$700/tonne (net) that is acceptable to Chinese; when it is below $600/tonne, the Chinese BEKP producers lose money and stop producing and if it is above $700/tonne, Chinese papermakers can’t sell their paper for a profit.
He said he expects the price to go up the announced $30/tonne by the end of the first quarter, then seesaw back and forth some in the $600-$700/tonne range during 2013. When the price goes to $700/tonne in Asia, customers don’t buy as much, which makes producers so nervous that they lower the price to make sales, he said, adding, “Come April, I’m worried.”
For the week ending Feb. 2, FOEX said the NBSK price in China increased $6.83/tonne, to $658.92/tonne. The BHKP index fell $3.22/tonne, to $654.50/tonne, thus putting the BHKP index lower than that of NBSK for the first time in several weeks.
“The overcapacity situation in graphic papers in China and insufficient profitability as well as the small or even negative price gap to BSKP have kept hardwood prices under pressure and prevented the announced price increases to go fully through in January,” FOEX wrote in its Feb. 5 commentary.
As for BSKP, FOEX noted that after a weak spot in early January, with reduced purchasing activity and slightly lower prices, the market for BSKP pulps improved in the latter part of the month and first days of February. It noted that although some suppliers have made February price increase announcements for NBSK and BRKP, there are also others that have either announced unchanged prices or remained quiet over their pricing intentions.
BCTMP moves. Two bleached chemi-thermomechanical pulp (BCTMP) producers are known to have announced a Feb. 1 $20/tonne list price increase for China. Millar Western Forest Products Ltd. led on Feb. 1, followed by Tembec Inc. on Feb. 4.
Neither stated its new list prices but executives with BCTMP producers said the January market in China was at $540/tonne for 80-bright hardwood BCTMP and $520-$530/tonne for 75-bright softwood BCTMP, with hardwood stable and softwood slipping a little bit. Some BCTMP executives have been saying that startup tonnage from Oji Paper Co. subsidiary Pan Pac Forest Products Limited (Pan Pac) in New Zealand has been affecting the softwood BCTMP market.
One of the executives last week said his company is “scrambling for inventory” and that, at the end of January, BCTMP prices were improving in China and went up $10/tonne in Korea.
He said his company has continued to get price increases in Europe in the last three or four months, as well. He noted that in Europe, BCTMP prices are tied to BEKP prices.
Dissolving pulp. On Feb. 6, China’s Ministry of Commerce (MOFCOM) announced an anti-dumping probe into imports of cellulose, dissolving, cotton linter and bamboo pulps from the U.S., Canada and Brazil. It said the investigation was aimed at determining the dumping margin and injury to China's pulp industry.
In a Feb. 6 research note regarding the action, RBC Capital Markets paper and forest products industry analyst Paul Quinn wrote that the investigation, which he said was related to dissolving pulp (DP) imports from North America and Brazil, was triggered by a complaint filed by major domestic Chinese producers in December 2012.
Quinn said the Period of Investigation (POI) related to the alleged dumping will be calendar year 2012 while the time-frame for considering potential injury will span Jan. 1, 2010, to Dec. 31, 2012, that interested parties would have to file a response with MOFCOM by Feb 26, and that MOFCOM expects to conclude its inquiry within the next 12 months.
Quinn said that while his group is not convinced that this investigation will necessarily result in any penalties, “we suspect Fortress (Fortress Paper Ltd.) has a heightened risk of import duties given the large financial assistance provided by the government of Quebec with the Thurso conversion to dissolving pulp as well as the government assistance promised for the conversion at the LsQ (Lebel-sur-Quévillon, Québec) mill.”
RBC is forecasting Fortress’s 2012 commodity DP shipments of ~130,000 tonnes, “with the vast majority to Chinese buyers.”
Quinn said Buckeye Technologies Inc. and Rayonier Inc. sold only a minor amount of commodity dissolving pulp over the last three years, with these volumes largely confined to the second half of 2012, but that Tembec was a much larger participant in the viscose market during this period.
“While all three producers focus on the high-end specialty DP market (unrelated to this investigation), they are all set to sell higher-than-normal commodity dissolving pulp volumes over the near-term due to weakness in certain specialty end-markets and upcoming capacity conversions from Rayonier/Buckeye in mid-2013,” Quinn wrote.
Separately, Industry Intelligence’s i2Live will be hosting a webinar on dissolving pulp on Feb. 20. Details can be found at this link: