Major pulp markets heading into April with solid pricing, fairly balanced global supply and demand

Diane Keaton

LOS ANGELES , March 31, 2013 (Industry Intelligence Inc.) – Pulp markets in key regions are experiencing fairly balanced supply and demand and prices are holding or increasing going into April.

There are few announced list price hikes for April, but earlier announcements are still being implemented as producers work on raising net and spot prices.

As previously reported, in mid-March, Russia’s Ilim Group announced China US$20/tonne hikes for both bleached softwood kraft pulp (BSKP) and bleached hardwood kraft pulp (BHKP), bringing its BSKP price to $650/tonne DAF and $680/tonne CFR. The new $680/tonne port price is up $60/tonne from February.

On March 23 Chile’s Celulosa Arauco y Constitución SA (Arauco) announced China $20/tonne April increases for both bleached radiata kraft pulp (BRKP), to $690/tonne (net), and unbleached kraft pulp (UKP), to $620/tonne (net).

Arauco did not make a China announcement for bleached eucalyptus kraft pulp (BEKP). Its March BEKP price is $700/tonne (list), whereas several major Brazilian producers announced an Asia $720/tonne list price (up $20/tonne) for March, up from the announced Jan. 1 price of $700/tonne (up $30/tonne), which they were still working to fully implement in March. Some sources said the March price in China did reach $695-$700/tonne.

On March 27, Canadian producer Alberta-Pacific Forest Industries Inc. (Al-Pac) announced that it is increasing its April 1 list prices of aspen-grade northern bleached hardwood kraft (NBHK) pulp for North America and China by $20/tonne, to $840/tonne in North America and $680/tonne in China.

Meanwhile, northern bleached softwood kraft (NBSK) producers are planning to implement their earlier-announced (in February) plans to increase their April 1 list price in North America by $30/tonne, to $930/tonne. Major NBSK producer Domtar Corp. had originally announced that its increase would be for March 1, but it, too, is going for the April 1 plan after competitors announced for April 1.

As for the dearth of other announcements for April, market observers said markets in general wouldn’t have been able to absorb them. They said that the few that were made reflected particular circumstances, i.e., that the NBSK plan for North America skipped March while other regions had March list price hike announcements, that the Russian BSKP and the radiata announcements could narrow the wider-than-usual gap between those pulps and NBSK in China, and that the Al-Pac is reportedly taking a longer-than-usual spring maintenance shut in May, losing 25,000 tonnes of NBHK output, at a time when Sappi Fine Paper North America is becoming a major net northern bleached hardwood kraft (NBHK) buyer with the conversion of its Cloquet, Minnesota, NBHK mill to dissolving pulp (DP).

Meanwhile, various previous announcements have not yet been achieved, and sources note that as time has gone on, price plans more routinely are taking a while to be fully implemented, and that sometimes they aren’t fully implemented.

Describing the approach nowadays as “a shot across the bow,” an industry source said, “No one has any credibility any more.” Announcements used to be “all or nothing” and producers “were serious and went to the wall.” Though prices were sometimes stepped in in the past, such an arrangement was contingent on the condition of an agreement for the full amount to be achieved in the given time period (usually two months), he noted, adding, “Now it’s, ‘We’ll argue about it next month.’”

Behaviors have changed because of doubt about the future of the industry, with players becoming more hesitant as demand patterns along with economic conditions have become so uncertain, he said. Add to that China’s approach to business even as buyers there now account for so much of the demand. “The behavior in that market is just different,” he said. “You have to play ball, and what’s agreed to today is just the starting point tomorrow.”

Ilim angle. Chinese buyers are looking forward to the arrival of tonnage from Ilim Group’s new NBSK line at its Bratsk mill in Siberia. As reported earlier, the mill was set to begin trialing pulp on March 15, with the old 220,000 tonnes/year line having been shuttered in February in preparation for the new 720,000 tonnes/year line (i.e., a net increase of 500,000 tonnes).

Sources said Ilim officials have told them that the mill is indeed in start-up mode. One of the sources quoted a top Ilim executive as saying that it began running chips through the digester the weekend of March 23-24. Other sources said the mill is said to be producing unbleached pulp in this very early phase, so Ilim will be offering unbleached at first, then likely producing and selling off-quality NBSK before full-quality NBSK production is reached.

A sales executive for an NBSK producer said the Bratsk tonnes would start hitting the market in late April and that there probably wouldn’t be an impact on the market until May/June, while a pulp agent who sells NBSK into China noted that it takes three weeks to ship Bratsk tonnage by rail to Manzhouli.

In its March 26 commentary, FOEX Indexes Ltd. wrote that the reduced supply of softwood from Russia with the old Bratsk line closed and the new one not running “has had little impact on the supply/demand balance of BSKP in China as the switches from integrated to market pulp have added to the softwood pulp supply more than what the temporary decrease of Ilim’s market pulp supply volumes has removed.” FOEX said the easy availability of softwood pulp volumes in China is particularly noticeable regarding spot volumes.

Tembec developments. Of note in the past week, Tembec Inc. announced on March 26 that it has reached an agreement to sell its 270,000 tonnes/year Skookumchuck, B.C., NBSK mill to Asia Pulp and Paper Co.’s (APP) Paper Excellence Canada Holdings Corp. for C$89 million (US$87.5 million), with the deal expected to close in the second quarter. The company had said on Jan. 31 that it planned to sell the mill within 12 months. The mill also has co-gen capability. Paper Excellence has purchased several other Canadian market pulp mills in recent months.

In other Tembec news, the company’s upgrade of its Temiscaming, Quebec, dissolving pulp (DP) manufacturing facility is on track, with the turbine still expected to start operating in May 2014, said a source familiar with the operation. Tembec announced the investment plan in March 2012. It includes a C$190-million capital investment to upgrade the mill, in order to increase annual production of green electricity by up to 40 megawatts, reduce sulfur dioxide emissions by 70%, and increase its specialty cellulose (dissolving pulp) output by 5,000 tonnes/year. It said the project would make Temiscaming one of the world's lowest-cost specialty cellulose manufacturing facilities.

North America notes. NBSK producers will seek $30/tonne price increases in North America in April, to a list price of $930/tonne. As reported in recent weeks, some buyer and seller sources alike are skeptical about the entire $30/tonne being achieved in April.

“$30 is a pretty aggressive number in this environment,” said a North American pulp sales agent in recent days, adding that an increase of $15-$20/tonne might be achieved in April.

Echoing others, a sales executive for an NBSK producer said the $930/tonne price would be “hard,” and that even the current price of $900/tonne, compared to Europe’s (not quite at $840/tonne), is “way outside the norm even if it’s $60.”

A pulp sales agent said there is “maybe marginally less” NBSK spot tonnage being offered now. He said some producers are sold out in April but would have tonnage to ship in May. As previously reported, North American softwood kraft pulp spot buyers have mostly been reporting price increases of $10/tonne, though there have also been reports of anywhere in the zero to $20/tonne range. Most say their NBSK spot prices are in the $620-$650/tonne range, with some a bit lower or a bit higher.

For the week ending March 23, FOEX said the NBSK price in the U.S. was unchanged at $900.73/tonne, having moved up $1.24/tonne the previous week to reach that Jan. 1 list price.

“The approaching Q2 maintenance downtime period, coupled with the seasonal peak period in paper sector in April-May, has pulp buyers on their toes and both softwood and hardwood markets appear to have tightened up during the latter part of March. The spot prices are up, even if only very moderately,” FOEX wrote in its March 26 commentary.

RISI Inc. showed a $35/tonne increase for aspen- and mixed grades of NBHK in March, to $820/tonne, and a $30/tonne increase for SBHK, to $815/tonne. (A few aspen and mixed-grade NBHK producers plus SBHK producers had announced March 1 prices of both $820/tonne and $815/tonne, up $30/tonne.) Describing the RISI price as “good news,” a pulp seller added that it indicated a strong market.

RISI also showed BEKP fully at the announced list price of $870/tonne, up $20/tonne, which is what BEKP producer sources have also been telling Industry Intelligence.

Looking at hardwood pulp and Al-Pac’s $20/tonne announced April 1 hike for North America (and for China), the aforementioned pulp seller noted Al-Pac’s planned maintenance outage, the Cloquet NBHK shut and the start-up of a paper mill in Washington State saying, “I think it changes the strength in North America of hardwood and it spills over into Asia, so they won’t send it there, and it affects markets like Korea and China.” As well, the Cloquet shift alone will “affect markets from Mexico to the U.S. to Canada, both suppliers and buyers,” he commented.

He said that from a seller’s perspective, he is “optimistic about reasonably good pricing for hardwood for the next while.”

(Harbor Paper LLC, in Hoquiam, Washington, which was reportedly shut in late February during a management change, will reportedly restart its uncoated freesheet paper production in mid-April. The mill was formerly owned by Grays Harbor Paper LLC.)

Europe settling. While the announced March BEKP price for Europe was $820/tonne, up $20/tonne, sources said the March price settled in Europe in the $800-$810/tonne range, up from $790-$795/tonne in February.

A few days before the end of the month, a sales executive for a Brazilian BEKP producer said his company was expecting to settle at $810/tonne in Northern Europe and $805/tonne in Italy in order to get its volumes. A sales executive for another pulp grade was hearing that $805/tonne was the predominant BEKP price, in a range of $800-$810/tonne.

The BEKP source said he had originally expected the March price to reach $810-$815/tonne but that customer resistance increased toward the end of the month as the euro weakened, on top of the “terrible” printing and writing market. (This has also been the case for NBSK price-hike efforts, sources have said.) As well, customers had some leeway because their stocks were comfortable, he said.

He said it might take two or three steps to fully reach the announced $820/tonne price and that it would be the peak price of this cycle. He said he doesn’t expect further global price announcements in this cycle. “The market is not ready to absorb the price increase announcements that were already made,” he said.

But he said he expects the second quarter to see further global upward price movement toward previously announced prices. “Our expectation is for the second quarter to be quite stable,” he said. But the third quarter will likely be “the turning point” as more production comes into the market, which could hamper further price hikes in 2013, he said.

Today the euro was at US$1.28026, down from US$1.30388 on March 24. On March 17 it was US$1.28945 and on March 10, it was US$1.29879, down from US$1.30135 in the previous week.

For the week ending March 23, FOEX said the BHKP price increased $1.66/tonne, to $801.36/tonne, and in euros it increased €7.80/tonne, to €618.91/tonne, with the euro having weakened by 1.1%against the U.S. dollar from the previous week.

FOEX said the NBSK price in Europe moved up 17 cents, to $837.02/tonne, while in euros it increased €6.95/tonne, to €646.45/tonne.

A sales executive for an NBSK producer said in recent days that his company was trying to close March pricing at $840/tonne. A week earlier another producer had said he expected the price to settle in the $845-$850/tonne range, up about $25/tonne from February.

Wherever it settles, it will be nowhere close to the announced March 1 price of $860/tonne, up $20/tonne. And the $840/tonne price had been announced to take effect Jan. 1, also up $20/tonne.

The latest European printing and writing paper statistics underscore the challenges in the region. Deliveries of European graphic papers dropped 6.5% in February 2013 from a year ago, to 2.994 million tonnes, according to European Association of Graphic Paper Producers (Euro-Graph) statistics released March 25.

Of the six paper sectors covered, the shipments of newsprint, coated woodfree, uncoated woodfree SC-magazine, and coated mechanical reels were in the negative ranks compared to February 2012; only uncoated mechanical (improved and others) showed positive year-over-year results.

February 2013 shipments to Europe totaled 2.471 million tonnes, falling 6.4% from February 2012, and exports of 524,000 tonnes declined 7.2%. For the first two months of 2013, Europeans shipped 6.107 million tonnes, declining 3.2% from the year-ago period.

China changes. Sources said the NBSK prices rose in China in March, with some citing the full $700-$710/tonne list prices announced by several commodity NBSK producers (up $20-$30/tonne) and the full $720/tonne price (up $30/tonne) announced by Canfor Pulp LP for its reinforcing-grade NBSK.

A Chinese agent who has been traveling around the country said that although demand has slowed down since mid-March, he still expects Chinese customers to continue buying pulp in April and to soon take the $20/tonne increases announced by Ilim and Arauco. He said March orders for Arauco have mostly been at the announced net price of $670/tonne, up $20/tonne from February.

He doesn’t expect Canadian NBSK producers to offer a new price in April, describing the March gross price range as $690-$720/tonne. He said Al-Pac achieved its $30/tonne increase in March. (The company had announced a $660/tonne price.)

“I assume the price for both hardwood and softwood will have more chance to continue to go up in April and May,” he said.

A Chinese buyer said he expects further pulp price increases in Asia, “But we don’t think the suppliers’ goal can be easily achieved, like what happened in the past months,” he said. “The buyers will use caution for taking volume when the price reaches a certain level, say $700 net.” The more aggressive suppliers are, the sooner the market will reach a turning point, he added.

A North American pulp sales agent said net NBSK prices were more in the $670-$680/tonne range, in other words, more than the usual 3%-5% range for a $710/tonne list price, “so that tells me the full list announced wasn’t achieved.” He said the announced prices were more for public posting, whereas business was done on a case-by-case basis relative to the previous month.

A sales executive for an NBSK producer said his company transacted contractual volumes anywhere from $685/tonne to $710/tonne (net-net) and that such prices were prevalent. He said traders who had bought tonnage a while back, probably in the range of $625-$630/tonne, are now liquidating their stock, thus slowing market momentum.

He said he expects prices to flatten in April, then track up again. “I don’t think they will fall off in the summer. There’s too much pull on the demand side,” he said. Though trading selloffs can cause prices to “nosedive” into the low $600s/tonne before creeping back up again, he said this year could be different because of the additional tissue machine capacity that has come on in China “that needs 30% softwood fiber.”

Another North American pulp sales agent said the local market has “cooled a little bit,” but that the supply in the second quarter is likely to be limited because mills in North American “are not running that well.” He named two Canadian mills he said are having production problems and he said there are some operational issues in the U.S. South, all happening as the maintenance shutdown season gets underway. “If demand is a little more tepid in the second quarter from China, I think that will match supply,” he said.

He said that in March in China, both the NBSK and BEKP list prices reached $700/tonne, with the net-net prices being $680-$685/tonne for NBSK and $650/tonne for BEKP.

With room still for improvement in hardwood pulp net pricing, this will be the focus rather than announcing new list prices, he said.

Looking ahead, he noted that the new paper machines being built in China will need NBSK “and Ilim alone can’t satisfy” the demand. He said he hopes the growth in China will offset the declining demand in Europe.

Some major Brazilian BEKP producers announced a March list price for Asia of $720/tonne, up $20/tonne, not having achieved their previously announced January price of $700/tonne yet in China in February. Sources generally said the March price in China was $695-$700/tonne.

A sales executive for a Brazilian BEKP producer said his company was expecting a gross price of $695/tonne up from the $672-$675/tonne prices his company got in February. But he said demand improvement in China has come at a slower pace than his company had expected.

Another pulp supplier source, who was in China for one of the recent market pulp conferences, said hardwood pulp producers raised their March prices by at least $20/tonne. He said BEKP producers achieved a $700/tonne price in China, Taiwan, and South Korea, but he noted that the China net price was $660/tonne, which he said was a higher-than-normal discount.

A market pulp consultant said the BEKP list price in March was around $700/tonne, with net pricing in the $660-$665/tonne range, but that he had also heard a $650/tonne price for China.

For NBSK, the consultant said the gross price was in the $700-$720/tonne range, up as much as $30/tonne, and that he heard a net price of $680/tonne.

For the week ending March 23, FOEX said the NBSK price in China dropped $1.53/tonne, to $686.02/tonne. The BHKP price rose $7.02/tonne, to $683.70/tonne, thus narrowing the gap between NBSK and BHKP.

In its March 26 commentary, FOEX said the hardwood spot market in China has softened a bit during March, while for contract business, suppliers remain bullish and buyers are skeptical.

FOEX noted that the Guangzhou Pulp and Paper Exchange opened in mid-March as a new major trading platform for physical trade with several warehouse locations around China, and that a few thousand tonnes of pulp “were traded already during the first week of operations.”

Separately, China imported 1,090,184 tonnes of pulp in February, for decreases of 29.7% year-over-year and 19.7% month-over-month, according to China Customs Bureau statistics. The two-month 2013 figure of 2,448,561 tonnes fell 9.8% from the first two months of 2012, marking the first time since 2010 of a year-to-date decline.

February and January marked the second month in a row in which BHKP imports to China fell under 500,000 tonnes. And February 2013 was the first time in months that BSKP imports dropped below 500,000 tonnes--in this case, down to just 378,835 tonnes.

BCTMP prices. Sources have reported some upward movement in bleached chemi-thermomechanical pulp (BCTMP) prices in March.

A pulp sales agent said that for China, prices rose $10-$20/tonne, depending on the starting point. He said the pricing seems to be mostly stuck in the range of $500-$550/tonne (delivered main port China), and that BCTMP producers “have accepted their fate and orders are OK.”

He noted that the price-hike limitations require sellers to try to be one of the first to “grab a customer and make a deal” when a price point is hit.

A sales executive for a BCTMP producer said in recent days that the March hardwood BCTMP price in China was “at least $10 higher” than in February, to $560-$570/tonne, and that the softwood BCTMP price was $5/tonne higher, to $525-$535/tonne. “Most suppliers like us were trying to get $20, so there was some disappointment,” he said.

Buyers for Chinese ivory board producers were “really resisting” the increases, he said. While there have been expansions of ivory board capacity, supported for the most part by integrated operations, they do buy small volumes of softwood BCTMP as well as some hardwood BCTMP for backup, he said. But the increased supply of ivory board in the market has dampened pricing, which is expected to be the case for some time, which has underscored buyer resistance to pulp-price increases, he said.

Also the startup of Oji Paper Co.’s Pan Pac Forest Products Ltd. (Pan Pac) softwood BCTMP operation in Whirinaki, New Zealand, has had a negative impact on pulp pricing, he and others have noted. Noting that BCTMP is a relatively small segment of the pulp market, he said one mill can have “a significant impact on demand and price.”

On the positive side for BCTMP producers, he said most BCTMP appears to be well sold.

Dissolving pulp. A sales executive for a North American dissolving pulp (DP) producer said the spot viscose-grade DP price is in the $960-$970/tonne range, up from around $900/tonne at the start of the year. He said the softwood DP price is higher than that of hardwood DP.

As for China’s Feb. 6 announcement that it had decided to launch an anti-dumping investigation into imports of dissolving, cotton linter and bamboo pulps, the DP sales source noted that the targeted countries, Canada, the U.S., and Brazil, are the top three importers into China, accounting for about 58% of the volume.

The investigation “clearly means less supply—it’s not good for (China),” even though it is “an effort to protect the domestic DP market,” he said.

“So it’s political…It’s not meant to be fair,” he commented. “It’s meant to find countries guilty.”

With China now the largest viscose market, it would be difficult for the targeted DP producers to find other markets, he said.

Tissue angle. More news is coming from sources traveling in China in connection with the two conferences held recently in Guangzhou and Shanghai.

A source said there are two new major tissue mill projects, one by tissue producer Vinda Paper Group at the site of an existing tissue mill south of Hong Kong, which will use 40% softwood pulp and 60% hardwood pulp, and another by Asia Pacific Resources International Holdings Ltd. (APRIL), in Xinhui, on the same site as its new 450,000 tonnes/year uncoated freesheet mill. At its Rizhao location, where it has a BEKP mill, APRIL also plans to build BCTMP, printing and writing paper, and viscose operations, he said.

Korea news. A pulp sales agent in South Korea said BSKP prices in that country rose $20/tonne in March, including to list prices of $785/tonne for NBSK and $745/tonne for BRKP.

The unbleached kraft pulp (UKP) list price increased $10/tonne, with a net price of $600/tonne for prime-sheeted from key mills, he said.

He said NBHK producers were still negotiating late in the month, but were expected to increase their pricing by $20-$30/tonne, to $700-$710/tonne. All other hardwood pulp suppliers raised their prices $30/tonne, to $700/tonne, he said.

He and the aforementioned BCTMP sales executive said the 85-bright aspen BCTMP price rose $20/tonne, to $680/tonne.

The BCTMP source said this helped get Korean pricing “back in line” after it had been lagging. The net prices for certain grades are higher in Korea, than, say, China, but it also costs more to ship to Korea, he commented.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.