Updated: Another round of softwood pulp price hikes expected for November, at least in China, while hardwood pulp producers hope for some pricing traction globally

Diane Keaton

LOS ANGELES , October 13, 2013 (Industry Intelligence) – Industry Intelligence Editor’s Note: This article, which was posted on Oct. 13, was updated on Oct. 14 to show that the price hike has been confirmed by Arauco, which said the announcement was made on Oct. 12, that all increases are for US$20/tonne, and that all of the prices are net.

October isn’t half over yet but the notion of further hikes in November for bleached softwood kraft pulp (BSKP) has been gaining momentum in the last week or two.

Chile’s Celulosa Arauco y Constitución SA (Arauco) on Oct. 12 announced Nov. 1 US$20/tonne price increases for China for bleached radiata kraft pulp (BRKP), to $730/tonne (net); for unbleached kraft pulp (UKP), to $690/tonne (net), and for bleached eucalyptus kraft pulp (BEKP), to $660/tonne (net). A company official confirmed this information on Oct. 14.

Softwood pulp producers continue to enjoy snug supplies and are quick to trot out the ongoing World 20 supply figure of 28 days that the Pulp and Paper Products Council (PPPC) said has been in place from June through August.

Sales executives with various BSKP suppliers are expecting further price hike announcements for November, particularly for China.

The currencies “of all” of the softwood pulp producers are strong against the U.S. dollar, said one such source. “At those rates, the pulp price needs to be higher…I would think that Canadians would need it to happen.”

But he noted the economic uncertainty that the current shutdown of the U.S. government is creating around the world, which he said could cause NBSK producers some hesitation about trying to boost prices again right away.

Eucalyptus angle. Meanwhile, bleached eucalyptus kraft pulp (BEKP) producers are trying to prevent further price erosion in October and they may even be seeing a few dollars more here and there.

A few producers made price increase announcements for October. Brazil’s Suzano Papel e Celulose SA said it was going to $800/tonne in Europe and $700/tonne in China. Spain’s ENCE announced up $30/tonne for Europe. Also Eldorado Brazil announced for Europe and China, to a range of prices for both markets. Brazil’s Fibria Celulose SA is supporting the higher price plans but it didn’t make a formal announcement.

“[H]ardwood pulp market sentiment has become modestly more positive in recent weeks as an increasing number of market participants expect that prices are bottoming out and that additional supply from new BEK mills in Uruguay, Brazil and China is not likely to reach markets in significant volumes until Q2 2014,” wrote market pulp consultant Brian McClay in the just-published October edition of his Market Pulp Monthly report.

“There is also the sense that hardwood pulp will regain some market share at the margin from softwood pulp now that the softwood/hardwood price spread has started to widen in virtually all contract markets,” McClay wrote.

McClay said that in spot markets such as Turkey, the net price spread between BEKP and NBSK is approaching $150/tonne, with the NBSK price around $730/tonne and BEKP transacting recently around the $600/tonne level.

A sales executive for one of the BEKP producers said his company has seen “a significant increase, not $5 or something like that,” in some spot markets, which he described as “substantial volume at higher prices.” It is too early to see whether the market has turned, he said, but “October seems different in its tone.”

As for the contract talks underway or getting underway among some pulp suppliers and buyers, he commented, “If discounts go up, the price goes up because everyone is looking for the net price.” Not only have North America and Europe been seeing higher discounts over time, but, as he said, there has been “some inflation of discounts” in China, as well.

Separately, tensions have flared between Argentina and Uruguay over UPM-Kymmene Corp.’s plans to increase the annual output at its 1.1 million tonnes/year BEKP mill in Fray Bentos, Uruguay, to 1.2 million tonnes/year. With Uruguay recently granting a permit for this, UPM said in early October it would thus immediately restart the mill, which it had kept down following maintenance Sept.14-25.

Argentina has said that it would fight the expansion in the International Court of Justice in The Hague. And now Argentina has unveiled a report that it says shows pollution in the Uruguay River, and it has asked Uruguay to step back from its decision granting the permit, BNamericas reported Oct. 11. Argentina's foreign affairs minister, Héctor Timerman, said that in the last three years, Uruguay has several times blocked plans to measure pollution in the Uruguay River, which separates both countries, and he published a report showing high levels of chromium and nickel, and chemicals in it, BNamericas reported.

As for the 1.3 million tonnes/year Montes del Plata BEKP mill project in Uruguay, joint partners Arauco and Stora Enso Oyj recently said it would start up in the fourth quarter instead of the third--a year ago it was slated to start up in the second quarter of 2013--and some sources don’t expect it to start up until the first quarter of 2014. Given that Arauco and Stora Enso are public companies, sources are expecting timely updates regarding the startup timing.

Meanwhile, Suzano’s new 1.5 million tonnes/year mill in Maranhão, Brazil, is expected to start up late this year, as planned.

The aforementioned BEKP producer source said the Montes del Plata situation is similar in its effect on the market to the later-than-expected arrival of tonnage from Eldorado Brazil, which started up late last year. He noted that would-be Eldorado buyers had started reducing their purchases, “hoping that by at least January they would get substantial volumes from Eldorado,” but that those volumes didn’t arrive until some months later.

“People are expecting the pulp will come, and then when not, some almost feel a shortage because it’s not there,” he said.

Separately, he said, global BEKP demand has increased enough—in excess of 750,000 tonnes—to more than cover the new output from Eldorado and the closure of Jari Celulose SA. “The market is still growing in tissue and packaging,” compensating for the reduction in demand from printing and writing papermakers in Europe and North America, he said.

North America market. The BSKP market in North America appears to be supporting the October price hike announcements, up $20/tonne, to $970/tonne for NBSK and $930/tonne for southern bleached softwood kraft (SBSK).

“$970 is a done deal, I think,” said a sales executive for a Canadian NBSK supplier. “Structurally the business is tight,” he said. “The 28 days of supply should affect North America the same way.”

But, he said, “The problem stems from Europe,” so it is necessary to be mindful of widening price gaps. The currently strong euro, which has been at US$1.35 in recent weeks, doesn’t warrant a drop in the price in Europe, he added.

For the week ending Oct. 5, FOEX Indexes Ltd. said the NBSK price in the U.S. remained at $948.38/tonne.

A buyer said that early on, he was very skeptical that the October softwood pulp price hikes would succeed, “but more and more into it I’m hearing inventories are fairly snug and suppliers are pretty well sold out, and China is purchasing again,” he said. “From what I’m hearing, suppliers are planning to push it through.”

He and others said suppliers kept their announced (in June) list price at $950/tonne in September after RISI dropped to $945/tonne in August, but that they did their business at $945/tonne. So the October price of $970/tonne amounts to a $25/tonne increase, this buyer said.

A U.S. buyer of NBSK said he isn’t sure if the $20/tonne announcement will stick, but that he won’t be much concerned about pricing until the last 10 days of the month. “The prices are going up but the discounts go up, too,” he commented, adding that suppliers “take care of certain customers and pick on others.”

Contractual discounts “keep getting bigger and bigger. It’s a silly game. They’re pushing 30% discounts on some grades,” said one of the buyers. “Somehow it’s got to be reset and the whole process will start over again.” Nowadays, he noted, there are discounts in China, too, having gone from zero in the not-too-distant past to “2-3-4-5%.”

As previously reported, North American buyers mostly say that spot NBSK prices are in the mid- to high-$600s/tonne, with prices unchanged to up $20/tonne. In recent days a regular non-contractual customer said he has had the same price range since July, of $680-$690/tonne depending on the source. He said his spot price of SBSK is $640/tonne. Another NBSK buyer in recent days said spot price has been in the $660/tonne range, unchanged since August, and a third reported NBSK at $675/tonne, up $20/tonne in October on a list-price basis “after much haggling back and forth.”

One of the buyers noted that the softwood pulp strength is supply-driven. “I don’t think the markets are that strong,” he said. North America for tissue is strong but I think that will self-correct.” But meanwhile, he said, supply is “so constrained, 30,000 here, 20,000 there” out of production. He named several major producers that have lost “a bunch of tonnes” and said there have been poor startups coming out of the fall maintenance shuts.

Buyers of northern bleached hardwood kraft (NBHK) and southern bleached hardwood kraft (SBHK) have mostly been reporting October spot and net price decreases of $5-$10-$20/tonne. Typically the range is still about $630-$650/tonne, or, where there are freight advantages, some pricing is around $600/tonne or so.

There was recently a move to increase exports of NBHK, “to get tonnes out of the U.S. to defend North American pricing, which is absolutely crazy,” said one of the buyers in the past week. “Word got out on the street—there’s more availability out there.”

Another NBHK buyer in recent days, describing his October spot price as $610-$615/tonne, down $10-$15/tonne from September, said, “I’m definitely noticing that northern hardwood producers want to move a little more tonnes. They are getting more competitive.” He said this traces to BEKP producers bringing the price down. “I think there’s more hardwood out there,” he said. He described the gross BEKP September price as $870/tonne, adding, “I have a feeling that October when it settles will be even lower.”

He noted the most recent FOEX BHKP figure for Europe down $1.28/tonne to $768.83/tonne, which is a differential from North America of more than $100/tonne, and “no success getting it up” this month, he said. Citing the thinking that the October announcement to $800/tonne in Europe was aimed at putting a floor under the price, he said he thinks it instead will fall.

Fortress decision. On Oct. 11, Fortress Paper Ltd. announced that it has decided that the best possible strategy for its Fortress Specialty Cellulose mill in Thurso, Quebec, is to operate it as a “swing mill,” producing both dissolving pulp (DP) and hardwood kraft pulp, which it said would provide flexibility and maximize margins in response to market conditions. The mill has been producing DP since last year, but it previously produced maple-grade NBHK.

A week before Fortress Specialty Cellulose announced its decision to swing, CEO Yvon Pelletier told Industry Intelligence that there is a need for NBHK in North America, in no small part because Sappi Ltd. ceased production of NBHK at its Cloquet, Minnesota, mill when it switched to DP. He said buyers like the maple grade.

A knowledgeable source told Industry Intelligence that the Cloquet mill had been producing about 340,000 tonnes/year of NBHK for the market, mostly aspen, with “probably less than a quarter” being maple-grade.

In conjunction with Fortress’s decision, would-be customers were told that Fortress had started making NBHK early last week, with the switch from DP going well, and that Fortress plans to run NBHK for the rest of October, then swing between grades as required to meet customer needs.

Several days before Fortress announced its decision to swing production, a U.S. buyer said this would be a good move for buyers. Another would-buyer of Fortress’s NBHK, noting that maple is a premium fiber, said customers might think twice about reviewing their pulp furnish for use of a fiber if it is available for “only six to 12 months and goes away again” when there is a pickup in the DP market. “I think they would have to discount it a lot,” he said.

Printing/writing challenges. A buyer for a printing and writing papermaker said the sector “is not as robust as we would like it to be, as I’m sure everyone else has told you.” He said current conditions are busier than they were during the summer, “but not like last year.”

The uncoated freesheet sector is benefiting from International Paper Co.’s plan to shut down its mill in Courtland, Alabama, he noted. But, overall, he observed, there is too much printing and writing paper capacity for the demand. Buyers can wait and get it without worrying about going on allocation, which is in contrast to the past, he said. “It’s a matter of time before (mills) take downtime,” he said. “I think it will be significant. Someone will take a whole mill down.”

In his October report, Brian McClay commented that this year’s seasonal demand boost has been much weaker for publication papers than usual, particularly for lightweight coated (LWC) in North America, “which should increase downwards pressure on paper pricing as the quarter progresses and increase the probability of significant paper machine market-related downtime and/or permanent closures in the first half of 2014 in both North America and Europe.”

Tissue issues. In an Oct. 7 research note, James Armstrong of Vertical Research Partners noted that private-label tissue producer Clearwater Paper Corp. reported that it now expects the price/mix in the consumer products segment to be zero to 2% lower year-over-year versus the 1%-3% higher guidance in July.

“With the recent pricing erosion in tissue, during a period when the industry participants expected more robust pricing, we do worry that this is a start of a trend,” Armstrong wrote. “Specifically, there is a significant capacity either coming online or currently being placed in the North America market (~8% of the market between 2012 and 2014), and we think the recent price erosion is a sign that producers are having to discount product to gain shelf space,” he said.

“Furthermore, we think the large branded players (P&G, Kimberly-Clark and Georgia-Pacific) are not just going to let the emerging private label offerings displace this business without a fight and thus are likely to discount to keep market share.

“Thus far, we have only seen a minor impact from private label activity (possibly due to the recent increase in pulp prices), but see a potential for continued and significant price erosion if companies get more competitive in fighting for shelf space,” Armstrong wrote.

Europe market. As previously reported, some sources have said that the announced NBSK $20/tonne October price hike in Europe, to $900/tonne, is going through and that supply is tight. But prices are generally expected to be finalized at the end of the month. The October hike is back-to-back with an announced $20/tonne hike for September.

For the week ending Oct. 5, FOEX said the NBSK price in Europe rose $2.49tonne, to $875.89/tonne, while in euros it decreased 82 cents/tonne, to €644.37/tonne. The euro strengthened again, this time by 0.4% against the U.S. dollar.

The BHKP index fell $1.28/tonne, to $768.83/tonne, and in euros it dropped €3.28/tonne, to €565.61/tonne. 

FOEX noted that in Western Europe, BHKP consumption has fallen between 1.5% and 3%, depending on whether one looks at PPPC deliveries or UTIPULP consumption numbers. “With hardwood pulp producer inventories above average, the attempts by the producers to raise prices have proved to be much more challenging than in BSKP,” FOEX wrote.

A sales executive for a BEKP producer said that the price of contractual tonnage in Europe is not moving down any more, or by no more than $5/tonne. He said his company is willing to walk away from business if it can’t get a higher price this month, in keeping with the announcements by some producers.

He said the market is turning, so this month’s price won’t be negotiated “until the last minute or after the last minute,” because “people are hoping they don’t have to pay the increase and they are fearing if they pay the price too early and pay more, then they will pay more than the competition…It’s a combination of hope and fear.”

Another pulp supplier source he said the hardwood pulp pricing appears to have bottomed. He said some Italian customers spoke of BEKP gross prices in September of “$750, $745, $760,” down $10-$15 from August, with expectations of flat pricing in October. (Sources have put the September price in Northern Europe mostly around $760-$770/tonne.)

His Italian printing and writing paper customers continue struggling to make money and they think their 2013 results will be similar to those of 2012, he added.

China activity. Producers of NBSK and bleached radiata kraft pulp (BRKP) have been saying that they sold their allocations in China at their higher announced October prices.

Additional business was finalized after Chinese customers returned from their National Day (“Golden Week”) holiday, which was from Oct. 1-7.

“While China was on Golden Week holiday, the rest of the world moved on. Since they came back, they got their heads around it,” said a sales executive for a BSKP producer, adding that his business has been done and that the new price has been accepted.

The October list prices are $730/tonne for reinforcing-grade NBSK, $720/tonne for commodity-grade NBSK, and $710/tonne for BRKP, adding up to $40/tonne increases over the September/October period.

A sales executive for a major Canadian NBSK supplier to China said his October list price is $720/tonne, “and no net prices below $710.”

With the holiday now over, he was expecting end-users to come to the table because he said they need the pulp. The pipeline in general has been low and traders have primarily been behind the recent demand-pull, he said. Traders both expect the price to go up and they expect to push the price up, he said, commenting, “Traders won’t go into the market unless they expect a rally.”

Chinese customers “still have a pretty good appetite,” he said. “The momentum is still there. I will be pretty surprised if we don’t implement another $20 in November.”

Europe and North America are “more of a question mark” regarding the possibility of a November hike, but with softwood pulp supply tight, it is worth giving it a try, he said.

He noted that Chinese buyers aren’t getting their expected supply from Ilim Group in Russia, due to production problems on the new Bratsk line, and that there has been less tonnage coming from Finland starting in the summer. SBSK producers “are the only ones shipping more to China, because of fluff,” he said, but added that it is not enough to be a market changer. And meanwhile, there are “dozens and dozens” of new tissue lines starting up that will need softwood pulp, he said.

As for the talk of substituting hardwood pulp for the increasingly costlier softwood pulp, he said there isn’t much room for that these days. Only tissue producers can substitute as much as 10%-20%, he said.

A sales executive for a major BEKP producer said that with the broadening price differential, “we will see more substitution.”

China’s net price didn’t move in September, at $610-$620/tonne, so that marked the bottom, he said. Had Chinese customers felt the price would go down further in October-November, they would have bought only what they thought was necessary,” but that was not the case, he said.

Because of Golden Week earlier in the month, he said he didn’t expect to get down to October business in China until early this week.

Another pulp supplier source said that perhaps the net BEKP price in China would move solidly to the $620/tonne net price in October, up from the $610-$620/tonne range.

In recent days a pulp sales agent doing business in China said the balance of the business is being done after the Golden Week holiday, but that beforehand, producers were getting “a few orders with good friends.” He said that before the end of September, the NBSK net price was “at best $680-$690 (and) probably on a net basis it is plus $20-$30” in October.

Looking at the paper markets in Asia, he described paperboard as OK, due to the strong packaging sector, which supports unbleached pulp, while the printing and writing paper sector in China is fairly weak, with machine operating rates averaging only around 70%, though some are a bit better. Old capacity in China is not being shut fast enough, he added.

The Chinese economy has leveled off and is more stable, with people “more used to the idea that (GDP growth) double-digits days are over,” he said.

For the week ending Oct. 5, FOEX noted that some of the price negotiations were postponed to take place after the recent holiday period, which occurred during the week for which the FOEX quotes were derived.

FOEX said the NBSK index in China headed higher by $1.91/tonne, closing at $704.47/tonne, while the NBHK index retreated again, this time by 65 cents/tonne, closing at $654.54/tonne.

FOEX said BSKP spot volumes being offered to China are limited and at prices close to the contract business. FOEX said the market situation is unclear, with both downside and upside drivers. “The weakening of the USD and the delays of new capacity, as well as the apparently increased purchasing volumes in China support the producers’ quest to change the direction of the price movement,” FOEX wrote. “Still high local and regional volumes from integrated to market pulp and above-normal producer stocks maintain the downside pressure.”

China/Asia outlook. In his October report, Brian McClay said softwood pulp buying in China should continue to be robust for a couple of months more, at least, as traders and end-users react to the much-slower-than-expected ramping up of the new Bratsk line and overall, he said, as paper and board output continues to increase on a seasonal and perhaps on a cyclical basis throughout the rest of the fourth quarter.

“However, softwood buying will probably slow in December as traders raise more cash to pay down annual credit lines before year-end,” McClay wrote.

As for BHKP, McClay said there probably will be somewhat less additional supply from Indonesia in the fourth quarter because paper output there will likely increase on a seasonal basis.

Moreover, he wrote, approximately 150,000 tonnes/year of virgin pulp-based new tissue paper capacity is scheduled to start up in Indonesia before the end of the year.

Between May and August, Indonesian BHKP exports to China averaged 80,000 tonnes, or 75% more per month year-over-year, which is the equivalent of a new 1 million tonnes/year pulp mill, McClay commented.

China/Russia projects. On Oct. 9 came the news that the Chinese-owned North Star Pulp Industrial Complex plans to build a greenfield 230,000 tonnes/year unbleached pulp mill in Russia's Chita region, with plans for it to start up in 2015. The output would be shipped to China. The news came from a press release from Honeywell, which said it has been selected to provide the process automation technology.

(One of the NBSK supplier sources remarked that he was unhappy to see the headline announcing this project until he saw that it would be for the production of unbleached pulp, not NBSK.)

On Oct. 10 Shandong Chenming Paper Holdings Ltd. announced that its Zhanjiang Chenming Paper will build a 190,000 tonnes/year printing and writing machine and a 180,000 tonnes/year mill to produce paper for paper cups, each requiring an 18-month construction period.

A pulp supplier source observed to Industry Intelligence that 190,000 tonnes/year for a printing and writing machine is “really small,” with the standard nowadays being around 400,000 tonnes/year.

Korea prices. A pulp sales agent in South Korea said in a recent report that in September, gross BSKP prices rose $20/tonne, BHKP and bleached chemi-thermomechanical pulp (BCTMP) prices dropped $10/tonne, and UKP pricing was flat.

He showed the following prices for September. The September and August net prices are in parentheses.

•NBSK: $805/tonne ($730-$740/tonne, up from $710-$720/tonne)
•BRKP: $775/tonne ($695-$705/tonne, up from $675-$685/tonne)
•SBSK: $765/tonne ($675-$685/tonne, up from $655-$665/tonne)
•NBHK: $660/tonne ($580--$590/tonne, down from $590-$600/tonne)
•South American BEKP: $660/tonne ($605-$620/tonne, down from $615-$630/tonne)
•SBHK: $660/tonne ($580-$610/tonne, down from $590-$620/tonne)
•Indonesian acacia: $660/tonne ($600-$610/tonne, down from $610-$620/tonne)
•Indonesian mixed: $650/tonne ($580-$600/tonne, down from $600-$610/tonne)
•BCTMP (aspen 85-bright): $650/tonne gross
•BCTMP (softwood): $640/tonne gross
•Unbleached kraft pulp (UKP): $640/tonne (net)

The agent said that after Arauco dropped its September price by $20/tonne, to $660/tonne, other producers, which had been at $670/tonne in August, then dropped their prices $10/tonne to match Arauco’s new number.

He said this also led to decreases in the prices of other BHKP grades as well as BCTMP.

He described Arauco as “one of the main suppliers of BEK” to Korea. “It was obvious that Arauco’s decision to drop pricing by $10 to $660 has caught all other suppliers off guard as many market participants had expected the pricing to remain unchanged,” he wrote.

But also the reduced prices helped most major paper mills in Korea to maintain their contract volumes, he said.

BCTMP market. A sales executive for a BCTMP producer said the hardwood BCTMP market “remains tight,” and that there is a chance for the price to move up $10/tonne, depending on the market and grade.

He said much depends on what hardwood kraft pulp suppliers do, but that pricing in October appears to have stabilized.

Noting that the BCTMP price in South Korea dropped $10/tonne in September, to $650/tonne, he said, “Maybe there’s a chance to recoup $10, maybe in November if not October.”

He said his company “is still tight on delivery backlogs” so it took less volume and was able to resist going down in price.

He said the strong BSKP market could provide some pull for the BHKP market and thus, for hardwood BCTMP.

On the softwood BCTMP side, some producers have announced $20/tonne increases for October, following $20/tonne announcements for September.

The aforementioned BCTMP source said that in China in September, softwood BCTMP producers shored their price up to $500/tonne, from what he described as $485-$490/tonne in August, and he said they could likely raise it to $520/tonne in October.

In his latest Market Pulp Monthly report, Brian McClay showed higher pricing than mentioned above. He said the China price of 75-brightness BCTMP in September was $520-$525/tonne, up from $500-$510/tonne in August and $510-$520/tonne in September.

McClay said the September 80-brightness aspen BCTMP price in China was $570-$585/tonne, up from $570-$580/tonne in August and July.

Conferences coming. London Pulp Week will begin the weekend of Nov. 9-10. Along with the meetings between pulp buyers and sellers, CelCo Cellulose Consulting will offer a conference, “Investing in Cellulose – 2013,” on Nov. 11 at the Royal Horseguards Hotel, and the British Wood Pulp Association and Hawkins Wright hold their long-running London Pulp Week symposium on Nov. 14 at the Freemasons Hall.

Looking ahead, China Pulp Week will be March 24-28, 2014. In conjunction with this, Brian McClay and Asia Forest Industry Consulting Co. are jointly hosting the 9th Annual China Pulp & Recycled Fibre Conference on March 25 and Hawkins Wright will host its conference on March 27. All events will be in Shanghai.

The PPPC’s International Pulp Week will be in Chicago May 4-7, 2014.

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