Pulp market roundup: Softwood pulp prices steady to strengthening in key markets, with a few hikes announced for February, while hardwood pulp pricing challenged in some markets

Diane Keaton

LOS ANGELES , January 19, 2014 (Industry Intelligence Inc.) – Bleached softwood kraft pulp (BSKP) and bleached hardwood kraft pulp (BHKP) markets are fairly steady overall this month.

There is upward BSKP price movement in North America and Europe, while prices are holding in China this month. BHKP pricing is wobbling in China and challenged in Europe, while steady to rising a bit in North America.

On Jan. 16, Chile’s Celulosa Arauco y Constitución SA (Arauco) announced that it will increase its Feb. 1 price of bleached radiata kraft pulp (BRKP) in China by US$10/tonne, to $740/tonne (net). Arauco’s BRKP price has been $730/tonne (net) since November.

Arauco is keeping unchanged its unbleached kraft pulp (UKP) price, at $720/tonne (net), having raised it $10/tonne in January. (Note: after the original posting of this report, a pulp sales agent in South Korea said Arauco at the end of last week announced a $10/tonne increase for UKP for January for South Korea, to $710/tonne (list/net), and that he was expecting other UKP suppliers to follow.)

Arauco’s is the first known Feb. 1 pulp price announcement for China. The only other known Feb. 1 price plan was the Jan. 10 announcement by Mercer International Inc. to raise its northern bleached softwood kraft (NBSK) pulp price in Europe to $930/tonne, which is up $10/tonne from the $920/tonne producers announced for November, itself at $20/tonne increase, and which has been not yet been fully implemented.

Looking at the Arauco announcement, a sales executive for a major NBSK producer said, “I think it’s legit,” not just aimed at shoring up current pricing. He said he is evaluating whether to announce a February price hike for China.

Another such source said the global NBSK market will “absolutely” hold through the first quarter and that maintenance outages will support it in the second quarter. “It’s more of a question of the summertime,” he said, adding there is the normal speculation, but that it’s too early to say. He mentioned there are also questions around the extent to which China’s anti-dumping duties on dissolving pulp (DP) will result in companies swinging to paper-pulp production. But he thinks NBSK prices might not only hold but also improve throughout 2014.

A North American pulp sales agent said the global market has been quiet for two weeks, and noted that the Lunar New Year is coming up soon (Jan. 31), which will likely mean little or no activity in China until mid-February. Observing that paper machines in China will be down to some extent during the holiday, he said the “real question” is whether Chinese papermakers will keep their machines down afterward. Machine downtime is “the biggest issue globally,” he added.

(Of note, Resolute Forest Products is indefinitely idling its last paper machine at its uncoated groundwood specialties mill in Fort Frances, Ontario, as of Jan. 31, due to weak orders, according to The Canadian Press on Jan. 15. The machine, which ran off and on in 2013, has a capacity of 112,000 tonnes/year; the mill’s other paper machine, shut about a year ago, had a capacity of 105,000 tonnes/year. The mill’s 200,000 tonnes/year kraft pulp mill was also indefinitely idled in November 2012.)

2013 demand. In his just-released January Market Pulp Monthly report, market pulp consultant Brian McClay said that in 2013, world demand for paper-grade market pulp is estimated to have reached around 59.2 million tonnes, up 2.4%, or 1.4 million tonnes, from its year-ago level. He said demand increased 1.4% for BSKP, 3.2% for BHKP, and 2.4% for high-yield pulp, about 80% of which was bleached chemi-thermomechanical pulp (BCTMP).

McClay said China’s demand in 2013 increased 6.5% year-over-year, down from its annual average increase over the previous 10-year period of close to 11%. But he said China still accounted for 75% of global pulp demand growth in 2013. And it accounted for 29.3% of global pulp demand in 2013, up from 18.5% in 2008 and from 14% 10 years ago.

North America was the region with the second-strongest demand increase last year, growing 4.6%, McClay wrote. He said this was driven by the biggest surge in tissue paper capacity in 40 years.
McClay expects the Pulp and Paper Council’s (PPPC) December World 20 chemical market pulp statistics to show producers’ pulp stocks unchanged against their end-November level, given that December is usually the strongest shipping month of the year. (The December statistics are scheduled for release Jan. 23.)

As for current global softwood pulp supply, McClay wrote that there is an increased supply of BSKP, in rolls and bales, roughly amounting to 200,000-300,000 tonnes on an annual basis, largely but not exclusively driven by China’s imposition of prohibitive anti-dumping (AD) duties on commodity DP imports from the U.S., which have forced a number of DP suppliers to switch back to fluff and paper pulp production.

Margins on fluff pulp in spot markets are considerably below those of paper-grade softwood pulp, so an increasing share of the diverted DP capacity as well as some ‘swing’ fluff pulp capacity from suppliers not affected by the AD duties is being produced as paper-grade pulp, McClay wrote.

Spot prices for fluff pulp in Asian markets are roughly in the $680/tonne (net) range, modestly lower than for southern bleached softwood kraft (SBSK), but fluff pulp costs more to produce and ship, McClay said. There will be additional paper-pulp supply, mostly SBSK, from DP producers avoiding the China AD duty unless the preliminary ruling is overturned on Feb. 6, he added.

Overall pulp producers’ stocks are expected to rise considerably through the first quarter of 2014, not only seasonally but also with Ilim Group’s new NBSK line in Bratsk, Russia, expected to be fully ramped up by March, even as significant market-related downtime is likely in the printing and writing paper sector in all markets, especially for lightweight coated (LWC) paper, McClay wrote.

Net pulp prices should remain relatively stable through the first quarter, “but with signs of actual price declines becoming apparent by March/April,” McClay said. “Prices should then continue to slide,” facilitated by a weaker Canadian dollar and a soon-to-be-weakening euro against the U.S. dollar, until bottoming out in September/October 2014, he said.

“They should then regain some positive traction as buyers, particularly in China, rebuild their stockpiles with relatively low-priced pulp, as some higher-cost capacity is idled or permanently closed and as US dollar strength starts to reverse,” McClay wrote.

Exchange rates. In a Jan. 13 report, Gary Helik of Tradition Group Co. said 2013 ended on an especially high note for Canadian NBSK producers selling into China at a price of nearly C$800/tonne, materially above the five-year average of C$719/tonne.

(“Some of the big boys in NBSK are printing money right now,” commented a sales agent, noting the weakened Canadian dollar; currently it is at US$0.91218.)

Helik remarked that on the other hand, BHKP prices in Europe and China began to slide during the second half of 2013. “A major salvation for Brazilian producers has been the depreciation of the Real during 2013 with the result that BHKP prices in Real actually held at elevated levels in Europe, exceeding the 5 year average by over 25% while European consumers were paying a price close to the 5 year average of about 560/t Euros….an unusual win-win situation for both sides,” Helik wrote.

While pulp prices in China ended up only 5% below the five-year average of US$656/tonne, currency appreciation resulted in Chinese buyers paying better than 5% below their four-year average while Brazilian producers reaped a price nearly 25% higher than their four-year average, Helik wrote.

Eucalyptus expectations. Sources have different views about how much new bleached eucalyptus kraft pulp (BEKP) will actually hit the market in the first quarter or the second quarter of 2014 or the full year, and how much can be absorbed by new paper capacity, and how much it will affect pulp prices. But they express no doubt that it will have an impact.

In his latest Market Pulp Monthly report, Brian McClay wrote, “All told, there is likely to be around 2.1 million tonnes of additional BHK supply available to buyers in 2014 vs. 2013, about 7.5% higher than 2013 estimated global demand.”

And sources are also talking about additional projects in the pipeline. “It keeps coming,” said a pulp agent as he ticked off various companies’ plans. “It’s just too much pulp.” As for the immediate future, he expects the hardwood pulp market to be stable until April.

North America market. Producer sources have been sounding confident this month about the announced $1,010/tonne NBSK price for North America, up $20/tonne, either saying it will go through or that it already has been implemented. However, one such source said his negotiations are still ongoing and seem to be affected by producers’ unchanged January price plans for Asia.

For the week ending Jan. 11, FOEX Indexes Ltd. said the NBSK price in the U.S. moved up $7.18/tonne, to $997.50/tonne.

Sources note the psychological factor of a price of $1,000/tonne (or more), but they also point out that discounts have continued to increase. The last time the price reached $1,000/tonne, which was several years ago, the discount level was only 5%-6%, commented a pulp sales agent. Now discounts are commonly in the 20-percentile, sources have been saying.

The agent said that in addition to their negotiated discounts off of list prices, some contracted buyers are still getting sizeable market allowances of $20/tonne or more. “No one talks about the market allowances out there,” he commented. He said the list price might not reach the full $1,010, describing $1,000/tonne as “a mental block for everyone.”

“The [$1,010/tonne] price is going through, no exceptions,” said a sales executive for a major NBSK supplier. This might be the price peak, holding for some time, or the price might go up, he said, commenting that the demand and consumer push has lasted longer than had been expected, and then there were the weather problems, all of which could support pricing into the spring maintenance outage period. But he said history suggests that if the Canadian dollar remains in the US$0.91-US$0.92 range too much longer, there could be downward price pressure.

A buyer said the $1,010/tonne NBSK price will go through. He said buyers can talk all they want about resisting and about exchange rates and China backing off, but the price will go through because supply is short. The recent weather-related unforeseen downtime and major logistics issues just added to the mix, he said. However, he said he expects the price to top out at $1,010/tonne.

Another buyer said he thinks pulp prices could dip a little before long, but that spring maintenance outages could firm them back up.

The supply of spot NBSK tonnage might have tightened some in recent weeks in response to the weather-related production and transport problems. But the price may not have jumped the full $20/tonne. There are ongoing reports that the price of NBSK spot tonnage in North America has increased $10/tonne in January, rather than $20/tonne. Sources have given varying ranges, from the low $700s/tonne to the low $800s/tonne. For example, in recent days, an agent said the January range is $730-$760/tonne, up, he said, from $720-$750/tonne in December and $710-$740/tonne in November.

A buyer said he bought spot NBSK in January at his contractual discount rate of 27%-28%, and on a one-month gross price lag, i.e., the December price of $990/tonne, which puts his January spot price in the $713-$723/tonne range.

Looking at SBSK, some spot buyers report unchanged prices in January, with one describing his price as in the $660-$690/tonne range, and another as $630/tonne. They said availability has not been an issue.

On the hardwood pulp side, North American spot buyers of domestically produced northern bleached hardwood kraft (NBHK) and southern bleached hardwood kraft (SBHK) have been reporting no change to $10/tonne increases this month, in various price ranges depending on their particular deals.

Mostly they report spot prices for NBHK and SBHK in the low $600s/tonne, with some a bit higher or a bit lower; the overall numbers are similar to those of December. Sources said spot maple-grade hardwood pulp is being offered in the mid-$600s/tonne.

A buyer for a printing and writing papers producer said he has seen no difference in BHKP availability. “I’m not having any supply problems,” he said. “Some are tighter than others.” He said he has been approached regarding spot BEKP, but that the prices are too high compared to those of domestically produced BHKP. “They’re not willing to compete but I suspect they will later this year,” he said, noting the new BEKP capacity that is coming on stream.

(Separately, some buyers for tissue makers have said that they have been substituting domestically produced hardwood for BEKP where possible.)

A pulp sales agent said his contacts in the U.S. Midwest and the U.S. East say hardwood pulp supply is tighter this month than last, describing it as “pretty balanced—it has been for a while, more than softwood.”

And another such agent described spot hardwood pulp supply in North America as “still pretty snug.”

Most sources and indices have put the December gross price in North America of aspen- and mixed-grades of NBHK, SBHK and BEKP at $860/tonne, with the producers of aspen and mixed NBHK and SBHK seeking $870/tonne list prices in January, while maple-grade producer Verso Paper Corp. has announced to $880/tonne.

There haven’t been many formal BEKP announcements but Fibria Celulose SA is seeking $870/tonne and Suzano Papel e Celulose SA is looking for a $20/tonne hike, to $880/tonne. Sales executives for other BEKP producers said they are trying to push up their prices commensurately, as well.

One of the buyers said he isn’t seeing a big push for the $870/tonne price for various kinds of BHKP. “The $10 price was weak to begin with,” he said.

In its Jan. 14 remarks, FOEX said the BSKP market remains tight, with low stocks in the pipeline. Looking ahead, FOEX said Verso’s planned purchase of NewPage Corp. would have some impact on both supply and demand for market pulp, but that most of the changes are expected on the hardwood pulp side.

FOEX said the Chinese anti-dumping decision is beginning to put some upward pressure on fluff pulp supply but that it appears not to have had much, if any, impact on the BSKP paper pulps, at least for the time being.

Weather woes. Pulp sellers and buyers in North America continued to report major transport-related issues last week, following frigid temperatures in early January that crippled rail transportation and led to increased reliance on truck transport. Sources said some problems had started around mid-December.

As previously reported, the severe weather also affected short-term production at various pulp mills from Canada down to the U.S. South, causing tightened supply and problems for buyers who need their pulp.

Sources said the transport backups were of such magnitude that they could take weeks to unravel in some cases.

“The biggest issue is managing the supply chain,” said a sales executive for a Canadian pulp producer. “The rail issues have been disastrous.” He said the weather problems started as early as four weeks ago. “The weather was not great and the big freeze exacerbated the problem.”

But he noted that the railcar issue will right itself and that pulp will eventually reach its destination. “If all that pulp comes in before the maintenance shuts or the paper mills shut down, it will balance out,” he said.

A sales executive for another pulp producer said trucks were hard to get even two or three weeks before Christmas and that the problems have continued.

Another such source said railcars were still in short supply, with a few isolated cars “trickling in.” In the third week of December, “a few cars went somewhere. They just showed up,” he said. “Hopefully we will catch up.” He has been relying on backup stock in warehouses, shipping it out by truck.

Saying that he is getting the pulp he needs, with no supply problems, a buyer quipped, “The only thing I’m hearing is truly tight is rail service. They can’t get it out of their mills.”

A pulp buyer at a specialty papermaker in the U.S. East said the pulp of a supplier was still stuck on rail and its warehouse was nearly empty, so the papermaker was sending trucks directly to the pulp mill. “The whole month of January is affected [by the transport problems], the buyer said. “We can’t go without it.”

(Meanwhile, this company’s business has improved year-over-year. “We’re booking out to the end of March, so it’s looking really good. A year ago it was three weeks [out],” said the pulp buyer, attributing the change to new products that have come on board, a gain in market share, and an improved economy.)

Another buyer in the eastern U.S. said he had trouble getting pulp two weeks ago because of rail cars being held up, but as of mid-week last week, they have “pretty much broken loose.”

One of the pulp suppliers said two paper mills on the East Coast had to shut for lack of pulp, but he wasn’t at liberty to name them.

In Canada, Tolko Industries Ltd.’s kraft paper mill in The Pas, Manitoba, shut for five days starting Jan. 15 as its warehouse filled to the brim with paper, with no rail cars to transport it away from the mill. A company executive told the Winnipeg Free Press that Canadian National Railway Co. (CN) cars were expected to arrive at the mill on Jan. 20.

Just-in-time delivery practices have brought U.S. pulp consumers’ stocks down to 18-20 days from 25-26 days five or six years ago, said a pulp sales executive. “Working capital is so valuable” and the just-in-time approach works well if set up properly, he said, “but you do need Option B.”

The weather-related problems are on top of the late-2013 lime kiln-related production problems at a number of Canadian pulp mills, said to be caused by contaminated lime. One of the producer sources estimated that about 35,000 tonnes came out of the system over a five-week period and that some companies didn’t make up their losses. He said his company had lost 5,000 tonnes early on but made it up by the end of the year. Another said last week that his company had lost 10,000 tonnes in November/December but had caught up in January. Sources have named other mills that lost production because of the lime kiln issue. Affected mills are said to be operating normally now.

Europe moves. In Europe, NBSK producers are hoping to achieve the full $920/tonne list price they announced back in November, which was up $20/tonne. Since then, the price has been gradually moving up; some say it was $900-$910/tonne in November and $905-$910/tonne in December.

The BEKP gross price in Europe was $760-$770/tonne for the last four months of 2013, according to Brian McClay in his Market Pulp Monthly report, and various sources have also put BEKP pricing more or less in that range. Sources said it has been under some pressure this month but that it isn’t yet clear where it is settling.

So far, other NBSK producers have not followed Mercer’s announcement that it would raise its Feb. 1 price to $930/tonne. However, a sales executive for another major European producer said his company has been telling customers that it will do so. But he said his company doesn’t plan to make a formal announcement. “It’s only $10 up. It should have been higher,” he said. “We think the market is stronger but [Mercer] did it and so early so it is difficult [to push for a different amount],” he said.

A sales executive for a Canadian NBSK producer said demand in Europe is still good and, given the exchange rate situation, the European market “isn’t paying more.” Shipping rates are fairly even, so European customers are still in a position to take a pulp price increase, he said.

He described the specialty paper business as “very good.” The automotive business in Europe and the U.S. has rebounded, resulting in more demand for NBSK, he said, adding that label making is another improved sector. And fiber cement, which uses UKP, “has really come back,” he said, observing that closures of some Russian UKP mills have also helped tightened that market.

Industry sources have commented that the closure last year of Södra Cell AB’s pulp mill in Tofte, Norway, has helped keep the pulp market tighter in Europe and that Canadian producers’ bad runnability in 2013 had helped keep the global market balanced. The high cost of wood in Europe, in part because of competition with the wood-pellet industry, has been another factor.

One of the sources noted that as a result, there is less NBSK going from Europe to China these days. For the first 11 months of 2013 compared to the first 11 months of 2012, NBSK imports to China from Sweden fell 40.1% and they were down 55.6% from Germany and 0.9% from Finland.

For the week ending Jan. 11, FOEX said the NBSK price in Europe rose $1.60/tonne, to $909.96/tonne, while in euros, it increased €3.48/tonne, to €669.73/tonne, as the euro weakened 0.3% against the U.S. dollar.

The BHKP price fell 40 cents/tonne, to $769.17/tonne, while in euros it rose €1.66/tonne, to €566.11/tonne.

(The euro is currently at US$1.35311.)

In its Jan. 14 commentary, observing that BHKP demand growth among the PPPC member countries speeded up toward the end of the year, FOEX said this obviously was partly due to the widening price gap between softwood and hardwood pulp and the ensued desire of the paper producers to maximize the share of hardwood, where technically possible.

But FOEX said part of the growth was “fully natural.” It remarked that tissue paper output grew worldwide, in the vicinity of 5% in many regions. It said that within the graphic paper sector, uncoated woodfrees, the other key end-use of hardwood market pulp, would probably end up showing modest growth over the year, which it described as around 0.5%.

As for BSKP, FOEX noted that a growing part of the market goes into tissue and into packaging and specialties, but that a lot still ends up in printing and writing papers. It mentioned the pressures toward more BHKP in the furnish and the approximately 1% decline in global graphic paper production, most of which is in coated grades in which softwood pulp holds a relatively larger share of the furnish.

China interest. Though various sources have been saying that January activity in China has slowed following a strong fourth quarter and going into the Lunar New Year, which starts Jan. 31, some sales executives for NBSK suppliers said in recent days that activity has picked up lately.

One such source, for a European producer, said late last week that a contact in China reported that activity had gone from none 10 days earlier to customers now asking for more tonnes for February. “He was a little bit surprised,” the source said.

A sales executive for a Canadian NBSK supplier said his January price is holding at $750/tonne gross/$740/tonne net. “Inquiries from customers are much stronger than usual, mainly from specialty manufacturers,” he said.

His is one of the companies that had lime kiln-related production problems, and he said his company’s January orders for Asia will be shipped later than usual, with some going out at the end of February and some at the beginning of March. The voyages take three weeks on the average and some tonnage won’t arrive in China until April, he said. Given such delays for various producers, there will be less softwood pulp availability in the interim, which will be help support the market, he said.

Another such source said Chinese customers don’t have a lot of pulp inventory on the ground and that they have been taking contractual amounts but aren’t doing much speculative buying. (But others have said considerable tonnage purchased late last year will be arriving soon.) He said customers might have to purchase in the latter part of February. And he said his company is continuing to assess whether to announce a price increase for February.

Some North American pulp sales agents had differing assessments of the China market for NBSK. One said there some orders are still being taken, “but not healthy amounts,” and he described order activity as “still slow as usual heading into the Lunar New Year,” with hesitancy for customers to do much. He said the price has slipped $10/tonne, to $710-$730/tonne delivered to China main port.

Another such agent said he hasn’t heard of any price slippage and that he has heard a price of $730/tonne, but nothing lower. But with their currency advantage, Canadian exporters might be “content not to book an increase in China,” he said.

Sources have been putting the net BEKP pulp price in China in the low $600s/tonne for several months, with some saying pricing has weakened a bit in January.

As previously reported, Chinese buyers are putting pressure on hardwood pulp prices in January. A North American pulp sales agent said that in the last 30 days hardwood pulp prices in China are unchanged to down $10/tonne. He said the net BEKP price is now $600-$610/tonne, down from $610-$620/tonne in November/December. He named one Brazilian producer selling at $600/tonne, and another, with bigger volumes, selling at $605-$610/tonne. He said commodity Indonesian pulp is at $580/tonne.

As for Indonesia, another pulp sales source doing business in Asia said that because of heavy rains in Indonesia, there have been problems transporting pulp from mills to ports.

In his January Market Pulp Monthly report, Brian McClay said BHK pulp buyers in China, who are mainly papermakers and not traders—he said traders account for about 60%-70% of softwood buying but probably less than 20% for hardwood—expect prices to decline from now on because there seems to be plenty of BHKP available from a variety of sources, both domestic and imports, with more supply on the way over the next few months.

He said Chinese customers’ BHKP consumption is also likely to be reduced over the next two months, with considerable market-related downtime being taken in January and around the Lunar New Year break, including by some major tissue producers, which he said is a rare event historically.

McClay said eroding margins on converted products and jumbo rolls in recent months are driving the tissue downtime, and they have also triggered decisions by several major producers to delay or cancel new tissue paper capacity projects. “Even modest price concessions by BHK producers in the near-term are unlikely to change this broad-based negative market sentiment,” McClay wrote.

Separately, McClay said China’s anti-dumping duties did lead to modestly higher commodity DP prices over the past two months in China—he said $30/tonne—but that increased supply from European producers and from new suppliers in Thailand and Japan have driven prices back down roughly$20/tonne over the past two weeks.

“Very low Viscose Staple Fibre prices in China, now at their lowest level since April 2009, essentially limit prospects for China DP prices to move much higher anytime soon,” McClay wrote.

FOEX indicators. For the week ending Jan. 11, FOEX said the NBSK price in China headed back down, by $1.24/tonne, to $741.16/tonne. The BHKP price lost 24 cents, closing at $652.79/tonne.

With higher quality hardwood pulp replacing mixed hardwood, hardwood BCTMP and non-wood pulp volumes, the share of softwood pulp in the furnish has been driven down, with the growing price gap as one of the drivers of the change, FOEX wrote in its Jan. 14 commentary. An increase in the local production of softwood pulp has also had an impact, FOEX added.

On the BHKP side, FOEX noted that there have been large increases in volumes shipped to China over the recent months, thus reducing the buying activity in the beginning of the year as customers were preparing for the Lunar New Year holiday season and holiday-time closures of the paper and board machines, with apparently comfortable stock levels.

FOEX noted that over the first 11 months of 2013, BHKP shipments from the PPPC member countries to China were up 15%, while the increase in Chinese paper and paperboard production was estimated at less than 3% for the same period, although admittedly more from the newer market pulp–consuming paper machines because some of the non-wood pulp-based paper capacity has been closed.

BCTMP picture. Looking at BCTMP in China, a North American sales agent said the $20/tonne increase announcement this month for softwood BCTMP reflects producers’ strong order books and could also serve to get others to hold their price, which he said has been $550/tonne, but with some down to $540/tonne. Meanwhile, buyers are inclined to run down their stocks a bit before the Lunar New Year, he said.

In his latest report, Brian McClay said the 75-bright softwood BCTMP price in China was $545-$555/tonne in December, up from $540-$545/tonne in November. He said the 80-bright aspen BCTMP price was $595-$600/tonne in December, up from $585-$590/tonne in November.

McClay reported that increased output of virgin-fiber paperboard, which requires the unique “high-bulk” functional advantage of BCTMP for its inner plies, boosted demand in China and led to more domestic pulp supply being integrated. Moreover, the inclusion rate of relatively low-cost BCTMP in coated paper has been rising recently for economic and performance reasons, McClay wrote.

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