Pulp market roundup: More softwood pulp producers announce February price hike plans for Asia/China, Europe while hardwood pulp producers try to hold their ground; softwood, hardwood pulp markets steady in North America
January 26, 2014
(Industry Intelligence Inc.)
– Some more bleached softwood kraft pulp (BSKP) producers have announced February price increase plans for Asia/China and Europe and others are expected to seek price hikes in these regions, as well.
On Jan. 23, West Fraser Timber Co. in Vancouver, British Columbia, announced that its new list price for Europe will be US$930/tonne and that it is raising its pricing in Asia $10/tonne.
West Fraser did not provide further details, but the $930/tonne price for Europe is $10/tonne higher than the $920/tonne price, up $20/tonne, announced by major NBSK producers for November, which is still being implemented. Previously Mercer International Inc. announced the $930/tonne plan for Europe. For Dec. 1, Canfor Pulp LP of Vancouver, British Columbia, had announced a $940/tonne list price for Europe, which was not followed by other producers, but which Canfor Pulp has not rescinded.)
West Fraser’s announcement for Asia marks the first Canadian NBSK price hike plan since November, when several Canadian NBSK producers announced $20/tonne increases that would bring their China prices to $740/tonne for commodity grade and $750/tonne for reinforcing grade.
As well, another major Canadian NBSK producer is said to be raising its February price and others are expected to follow.
Russian and Chilean BSKP producers were the first to announce China price hike plans for February. On Jan. 16, Chile’s Celulosa Arauco y Constitución SA (Arauco) said it was going up $10/tonne, to $740/tonne (net) for bleached radiata kraft pulp (BRKP), having previously raised the price to $730/tonne (net) for November. Then Russia’s Ilim Group said it was raising its February price in China to $730/tonne CFR (list), said to be up $10/tonne.
An Arauco official said the company’s new $740/tonne price was accepted “without problems.”
Arauco said its unbleached kraft pulp (UKP) price will be unchanged in February at $720/tonne (net); Arauco had raised its Jan. 1 UKP price by $10/tonne. An agent selling UKP into China said there have been many more offers lately because linerboard and kraft paper mills have been making unbleached roll pulp for that market at good prices for customers, which is putting UKP roll pulp prices under pressure. But he noted that customers realize that such availability could be just a temporary situation.
A more than three-week-old major port strike in Chile was settled on Jan. 25, according to local reports. On Friday, a day before the settlement, the Arauco official told Industry Intelligence the company was unable to load and that it had lost shipping capacity. With the strike still unfolding, he said it was difficult to assess the full impact, including how much volume was affected and when and how fast the company could be able to catch up with delays. On Friday a source familiar with Chilean producer CMPC Celulosa SA said CMPC had so far managed the situation OK with its inventories but that it would start having problems if there were no settlement by this week.
Current conditions. As for the markets overall, some veteran North American pulp sales agents said it is in better shape than most people had expected. One noted prior concerns that the new South American bleached eucalyptus kraft pulp (BEKP) tonnage would affect the market in the first quarter, which is now not the case. And in the meantime there are weather-related supply issues, “shutdowns, increased demand, and the European economy has started to recover,” he said. “It’s not what people thought it should be.”
Another such agent said that as of a few months ago, many players had expected “some measure of balance at the beginning of the year,” given that the new BEKP tonnage wouldn’t be in the market until the end of the first quarter or beyond, that there clearly is “a very balanced softwood market,” and that there wasn’t going to be dramatic economic event. But he commented that the printing and writing paper decline has seemed faster than anticipated.
As for ongoing talk by some that the price gap between BSKP and bleached hardwood kraft pulp (BHKP) will encourage more use of BHKP, he said, “It’s not 1980 or 1990 or 2000. Anyone who can use less softwood than hardwood or eucalyptus has already done the analysis” and any further increase in softwood prices is unlikely to lead to substitution. Instead, he said such an increase could cause demand destruction by pricing paper made with BSKP out of the market. But discounts are much higher now than in the past—they now approach 30% in North America—thus reducing the real transaction prices as well as price credibility in the market, he commented. For now, though, he said, “I don’t see a bad market developing for softwood for the next six to 12 months.”
A sales executive for a non-North American BSKP producer selling mostly into Asia said the softwood market feels quite tight everywhere—as tight in January as in December and November. And there are the weather-related problems and mechanical glitches in North America, he noted. “So we’ve really got an eye on all of the first half,” he said, adding, “It must be the supply side. Demand is pretty normal.”
He said he is continuing to receive inquiries from would-be customers in Asia but can’t accommodate them. His company will have maintenance shuts in the coming months, so it is pulling back on its allocations through March.
On Jan. 23, the Pulp and Paper Products Council (PPPC) released the December World 20 chemical market pulp statistics, showing that producer stocks increased one day in December, to 33 days, with softwood up two days, to 27 days, and hardwood falling one day, to 39 days. Shipments fell 0.2% year-over-year and the shipments-to-capacity rate was 95%. For the full year 2013, producers shipped 44.581 million tonnes, for a 2.5% increase over 2012.
In a Jan. 24 research note, RBC Dominion Securities Inc. paper and forest products industry analyst Paul Quinn
described hardwood pulp inventories as having come into balanced levels in December. The balanced level for softwood pulp stocks is ~30 days, he said. The five-year average for December stocks is 31 days for softwood and 37 days for hardwood, Quinn wrote.
But from the second quarter conditions will start to weigh on the market, Quinn said, noting that Ilim Group’s Bratsk, Russia, line is expected to be fully ramped up by March, along with additional capacity from fluff pulp producers selling more BSKP and more integrated paper mills in North America and Europe selling pulp. In the second half of 2014, softwood pulp markets will also face pressure as large hardwood pulp additions ramp up in Latin America and China, encouraging further substitution from softwood pulp, he said. (As noted above, others say most such substitution that could be done has already taken place in the past.)
North America aspects. NBSK suppliers and agents as well as some buyers have been saying that the January $1,010/tonne price of NBSK, up $20/tonne, has been implemented.
For the week ending Jan. 18, FOEX Indexes Ltd. said the NBSK price in North America moved up $5.07/tonne “and went through the 1000-dollar barrier,” closing at $1,002.57/tonne.
“The combination of the still-weak USD, the firmness of [the] softwood pulp market, and, possibly, partially still higher rebates has helped the price increase attempts to go through in January,” FOEX wrote in its Jan. 21 commentary. It added that on top of the market tightness, some maintenance downtime taken around the turn of the year and the very difficult winter conditions have affected shipments and caused concerns over the fiber supply schedules.
And these severe winter weather issues continue to hamper business in some parts of North America. In recent days heavy snow and frigid weather have again struck parts of North America, raising concerns of another round of production and delivery issues.
Another factor that has been affecting the North American market in recent months is Lincoln Paper and Tissue LLC’s need to buy pulp in the wake of the facility’s Nov. 2 recovery boiler explosion. It is purchasing at the rate of 4,000-5,000 tonnes/month, said a North American pulp sales agent. He and other sources have said Lincoln is taking mostly hardwood pulp.
Sources this month have mostly been reporting spot prices for NBSK of about $730-$760/tonne, with some in the lower $700s/tonne, up $10-$20/tonne, depending on the deal, and spot prices for northern bleached hardwood kraft (NBHK) of about $610-$640/tonne, with some a bit higher or a bit lower and up zero to $10/tonne, depending on the deal.
But sources generally say the list price for NBHK and southern bleached hardwood kraft (SBHK) has moved to the announced $870/tonne price, up $10/tonne from the previous market level.
The aforementioned agent reported some hardwood pulp spot tonnage as being priced in the low $700s/tonne because of a short supply situation that developed. In North America, he said, given weather-related issues and the demand from the Lincoln mill, “The Northeast right now is considered stronger for hardwood than any other region of the world.”
As for the weather-related problems, he said he hasn’t heard about any paper mills having to shut, but some “were very uncomfortable.”
Another North American pulp sales agent said his company has been trying to get some BHKP to sell in Mexico from a regular supplier in the U.S., but learned there won’t be any available for a couple of months because of an upcoming maintenance shut. And he named a major integrated papermaker that each month usually makes available some softwood pulp or hardwood pulp, including roll pulp or off-quality tonnage, but that has none to offer for February. He said this could be shaping up to be “another one of those years where the Chinese go on Chinese New Year and think there is plenty of pulp” but then come back to learn that that is not the case.
A pulp buyer in the upper Midwest who saw problems with rail and truck deliveries for early in January said, “We are experiencing it again.” (His recollection of the last time there was such a severe winter was in 1982.) He noted that the latest round of bad weather has hit such states as Ohio, Pennsylvania, and New York, rather than farther north. “We can get pulp out of the north,” he said.
From what he is seeing, the virgin fiber spot prices have gone up $20/tonne in general this month, driven, he thinks, by the weather situation. There is also less off-spec pulp available, he said. This is not the situation he had expected for January, he said, adding, “If the weather doesn’t break, they could go up again, like 10 bucks.”
His pulp suppliers, he said, “are happy things tightened up and things are kind of in balance right now.”
Another pulp buyer in the upper Midwest said he hasn’t had issues with pulp deliveries this month and called this a “normal winter,” in contrast to being “spoiled” in the last two or three years. He said he has experienced some frozen pipes and delays, but that they were “minimal—we were able to handle it.”
He said he is seeing $10-$20/tonne increases for spot NBSK, to $700-$740/tonne and that the market price of hardwood pulp is about $640/tonne, up $5-$10/tonne. He expects unchanged pricing in February for hardwood pulp.
As previously reported, not a few papermakers were scrambling for pulp in the early weeks of January. “Where we have needed to increase contract orders, there has been hesitation because it is tight,” said a buyer for a non-integrated North American specialty papermaker, who said rail car operations are “fairly normal” now after earlier in the month, when cars “did not move at all” for three straight days and it was necessary for suppliers to pull emergency stock from warehouses for delivery by truck.
Furthermore, the buyer reported receiving calls from people wondering if the company had any extra pulp on hand that it was willing to sell. There was a call requesting a particular grade of NBHK and another, from an integrated papermaker that apparently was having production issues, requesting both BSKP and BHKP. “I was a little surprised to get calls [for pulp],” the pulp buyer said.
But the buyer said softwood and hardwood pulp suppliers’ stocks are just temporarily lower because of short-term weather issues; this buyer doesn’t expect prices to hold for long.
Separately, Mitsubishi Corp. is considering selling Alberta-Pacific Forest Industries, Inc., which operates an approximately 670,000 tonnes/year pulp mill in Boyle, Alberta, producing mostly NBHK but also NBSK.
As reported in the Athabasca Advocate on Jan. 21, the company said Al-Pac no longer fits Mitsubishi's strategic vision, but that it is possible that there might not be a sale, in which case Mitsubishi would continue to hold the asset and keep running it. Al-Pac employees were told Jan. 14 about Mitsubishi’s plan and word got out in the pulp industry, fueling speculation about who might buy the mill.
Paper side. On Jan. 23, Great Northern Paper Co. (GNP) announced it would halt production at its mill in East Millinocket, Maine, for up to 16 weeks, starting Jan. 23.
In its announcement, company spokesperson Scott Tranchemontagne said paper prices were down at a time when GNP is paying high costs for wood, pulp and energy. The company said it had been preparing a conversion to heating the mill with natural gas so its biomass boiler could be dedicated to powering two paper machines, but that extremely volatile natural gas prices render this option unfeasible. The company said it plans to improve mill efficiencies, such as water and energy usage, during the shutdown. The mill produces newsprint, book paper and newspaper insert paper, according to Industry Intelligence archives.
Last week an executive for a Midwestern papermaker said that with the cold weather, natural gas was on limited supply in his area, and he said the local utility raises prices on an hourly basis when demand is high, greatly increasing his costs.
On Jan. 24, specialty papermaker Burrows Paper Corp., in Little Falls, New York, announced plans for a $7 million conversion and expansion, involving the shutdown of PM No. 2 and the repurposing of its components and space to the adjacent PM No. 3, thus boosting its capacity. It plans to launch a new, patented product this summer.
An executive with another U.S. specialty papermaker said his business has been picking up because of the announced plans for the merger of Verso Paper Corp. and New Page Corp. “Their customers are not happy,” he said. “They are looking for a second supplier.
Yet another said the year has started out well for his business, perhaps because the economy has improved. “Usually it takes longer to kick in in January,” he said.
At the same time, said a market pulp consultant, “The paper side is not doing well. Volume-wise it is about the same, but the prices are quite a bit lower for LWC (lightweight coated paper),” he said, adding that uncoated paper is doing OK because of a big supply cut.
Europe elements. NBSK producers have been targeting the previously announced Nov. 1 price for Europe of $920/tonne, up $20/tonne, to be fully reached by the end of January.
As noted above, West Fraser and Mercer have now announced a Feb. 1 $930/tonne NBSK price and Canfor Pulp’s unrealized $940/tonne announcement for Dec. 1 is still on the table.
As reported a week ago, a sales executive for a major European producer said his company is not making a formal announcement for February and thinks the price increase should be for more than $10/tonne, but that it is telling its customers that it, too, will go to $930/tonne. This comment rankled a sales executive for another European NBSK producer, who complained to Industry Intelligence about a particular competitor whose invoices, he said, “are always $10 behind us” because they are based on the FOEX figure, which he said makes it difficult for producers in general to achieve their announced price. “These guys have absolutely no idea how to make money,” he said.
For the week ending Jan. 18, FOEX said the NBSK price in Europe rose $1.12/tonne, to $911.08/tonne, while the price in euros increased 97 cents/tonne, to €670.70/tonne, as the euro weakened very marginally, or by 0.2%, against the U.S. dollar.
The BHKP price increased 34 cents/tonne, to $769.51/tonne, while in euros, with the slightly softening euro, the price rose 37 cents/tonne, to €566.48/tonne.
In its Jan. 21 commentary, FOEX observed that there is still some risk of earlier converted capacity to dissolving or fluff pulp to switch back to paper pulp, with lower-than-average price gaps between the grades, but it said that so far, little of this has been seen and the softwood market remains pretty firm.
And a market pulp consultant said that, given the various weather issues, he doesn’t expect any BSKP price declines until April.
A sales executive for a BEKP producer sounded optimistic about raising the gross price in Europe, saying it could go up about $20/tonne by the end of January, to about $780-$760/tonne, from its recent level of $760-$770/tonne. He said one customer is trying to limit the increase to $15/tonne, but that his company said responded that it “must be over $20.”
Hearing this, the market pulp consultant said, “I just don’t get that,” adding that this is not what he is hearing from buyers. He observed that the euro had weakened and that business in January tends to be weaker, as well.
The BEKP producer source remarked that the price had reached $820/tonne or so last summer before dropping down to $760-$770/tonne later in the year, caused, he said, by “the euro crisis.” He said some buyers in Italy had pressured for a price of $750/tonne, to no avail. “I didn’t see $750 in the market,” he said. He added that contracts with some of the larger-scale customers in Italy provide for a one-month lag on paying price change.
Though there is additional BEKP capacity coming into the market this year, he said there is also more demand, which will help reduce the impact, and he said the new capacity from South America will have more of an effect in China and Indonesia than in Europe.
Separately, UPM-Kymmene (UPM) announced on Jan. 22 that it would permanently close its 160,000 tonnes/year uncoated woodfree paper mill in Docelles, France, by the end of January. UPM said this is part of its plan to adjust its graphic paper capacity and support operations to match the declining demand in Europe. UPM said it has been conducting an active search for a buyer that could offer a credible future for the mill, but without success. The closure announcement came about a year after the company first stated it intention to sell or close the mill. It said it is still open to selling the mill's machinery and property.
Middle East. A pulp sales agent selling European NBSK into the Middle East said the price has increased, perhaps because of the weather, which is so cold that it sometimes interferes with transport.
The January NBSK spot price in the Middle East has risen $10-$15/tonne, to $725-$755/tonne, he said, adding that there is a wider price range than usual, but he’s not sure why. He said some of the European mills he talks to are busy while others are not and that some have too much pulp while others don’t have enough.
He said the spot price of all kinds of short fiber in the Middle East is unchanged, more or less in the $605-$650/tonne range, with some maybe a touch more depending on payment terms. “I don’t see it going up in Europe or the Middle East,” he said. “There is too much pulp.” He said European hardwood pulp suppliers are complaining that prices are too close to costs and “are not happy at all” but that Indonesian and Brazilian suppliers “are OK.”
China angles. Softwood pulp pricing in China is on an upward trend, whereas buyers think hardwood pulp is on a downward trend, said a Chinese agents, adding that there will be a better sense of the market direction after the Lunar New Year, which starts Jan. 31.
As have others, he said the hardwood pulp price in China appears to have dropped about $5-$10/tonne in January, to a net-net price of $600/tonne or slightly above.
He said a normal net price off of a $750/tonne list price would be $740/tonne, but that the net-net price currently is $735/tonne, which he said is up from $730/tonne in December. The January price rose because “people wanted to buy,” he said, adding that suppliers should have no problem getting a $10/tonne increase in February because suppliers’ inventories are low. He named three suppliers for which this is the case and said some suppliers might be oversold and could limit their allocation. (As has been reported, several Western Canadian suppliers lost production late last year because of lime kiln problems.)
Canadian NBSK suppliers are “very positive” about market conditions and Chinese buyers are “not complaining—it is whether they can buy,” he said, adding that even if the price is too high, they will purchase from local sources, since the price is still lower than the imported price.
And a market pulp consultant said that in China, at least for softwood, the tone appears to have changed. This, he said, is a surprise. He surmised that the difference in tone may be because of winter weather-related delivery difficulties of pulp from not only North America, but also from Siberia, along with problems transporting wood to at least one major mill in South Sumatra, Indonesia because of heavy rains. He said his information is that the paper business hasn’t changed at all, and that the demand is coming from traders.
As for any concern that rising BSKP prices in China are more than customers are willing to pay, a North American pulp sales agent commented, “If they need to run the machines, they are going to buy.” The “real question,” he said, is whether papermakers will be running the machines after the Lunar New Year hiatus.
He said his spot BSKP price went up $5/tonne in January and that he expects the overall BSKP market to be balanced. And he said the devalued Canadian currency could make Canadian producers more willing to sell at a lower price.
For the week ending Jan. 18, FOEX said the NBSK price in China headed higher by $2.94/tonne, to $744.10/tonne. The BHKP price gained 61 cents, closing at $653.40/tonne.
FOEX noted in its Jan. 21 commentary that the severe weather conditions in North America have delayed both regional and export shipments and that NBSK pulp supply reductions due to production losses are also helping support the market balance in spite of a small decrease in softwood pulp exports to the Chinese markets.
Looking at BHKP, FOEX said paper and board mills are taking above-average downtime this year around the Lunar New Year holidays. But switches to dissolving pulp, for example, in Thailand, and some integration moves are limiting the local supply growth, said FOEX, adding that the low availability of higher-grade recovered paper helps to keep the hardwood pulp market in a “fragile-looking balance.”