Pulp market roundup: February markets experiencing little pricing fanfare but delivery problems continue to grab the spotlight

Diane Keaton

LOS ANGELES , February 16, 2014 (Industry Intelligence Inc.) – Bleached softwood kraft pulp (BSKP) and bleached hardwood kraft pulp (BHKP) markets continue to be fairly steady, with BSKP in stronger shape than BHKP.

Depending on the region, there are unchanged to slightly higher prices for BSKP in February.

For BHKP this month, spot prices in North America are higher while gross prices are the same; gross prices in Europe may be edging up; and net prices in China are the same or a bit lower.

Some BSKP suppliers in the past week have suggested that there could be further price increase announcements for March in North America and Asia, perhaps of $20/tonne. As for BHKP, a sales executive for a North American pulp producer said even though the supply of BHKP is “somewhat tight,” it is “inflated tight” because of the ongoing weather-related issues.

As previously reported, several BSKP producers announced US$10/tonne price hikes for Asia/China, and the China prices are going through. Some NBSK producers are also seeking higher prices in Europe this month.

On the bleached eucalyptus kraft pulp (BEKP) side, a sales executive for a Brazilian producer said, “[T]he market seems quite calm at the moment. We are still confident to keep increasing the price not only in Europe but also in Asia.” As for China, even though the holiday period has ended, there is “not much going on,” he said.

BCTMP moves. Canadian bleached chemi-thermomechanical pulp (BCTMP) producer Millar Western Forest Products Ltd. on Feb. 7 announced that it was increasing its China prices by US$10/tonne for 80-brightness aspen BCTMP and by $20/tonne for 75-brightness softwood BCTMP for February orders. Millar Western didn’t state its new prices.

Also Swedish softwood BCTMP producer Waggeryd Cell AB raised its February price in China, according to an informed source.

Another informed source said that softwood BCTMP producer Winstone Pulp International Ltd., which announced a $20/tonne January hike for Asia, succeeded in some markets, while in China it got $10/tonne and is pushing for the rest in February, and the source said most softwood BCTMP producers are trying for $10-$20/tonne China increase this month.

In his February 2014 Market Pulp Monthly released on Feb. 12, market pulp industry consultant Brian McClay said the January 2014 BCTMP prices in China were $600/tonne for 80-brightness aspen, up from $595-$600/tonne in December; and $550-$560/tonne for 75-brightness softwood, up from $545-$555/tonne in December.

Softwood, DP angles. In his monthly report, McClay said first quarter 2014 BSKP supply should be considerably higher than in 2013 based on fewer planned maintenance outages, several small conversions from BHKP, more formerly integrated northern bleached softwood kraft (NBSK) from Finland, slowly rising output at Ilim Group’s new NBSK line in Bratsk, Russia, and more tonnage of baled and rolled southern bleached softwood kraft (SBSK) from American fluff pulp and dissolving pulp (DP) swing mills attracted by the higher margins of paper pulp.

McClay wrote that much of this added SBSK is a direct result of China’s imposition on Nov. 6 of provisional anti-dumping duties on America’s DP exports to China, but he said it could shrink considerably if the duties are reduced or eliminated when China’s Ministry of Commerce makes its final duty determination on April 6.

McClay added that there also is some downside supply risk for NBSK if mills continue to operate as poorly over the next six months as they did over the previous six.

(A North American pulp sales agent, noting that it was the shortage of cotton a few years ago that spurred the expansion of DP capacity, said that the anti-dumping duty “really is protectionism to protect the cotton industry,” which is now well-supplied. “So it protects that industry by keeping these duties,” he said.)

McClay expects softwood’s global demand/capacity ratio to drop to a four-year low in the second quarter of 2014. “Given an already weak Canadian dollar and a soon-to-be-weaker Euro, BSK pries are likely to follow BHK prices down until bottoming out in September/October 2014,” he wrote.

He said current NBSK prices in China in Canadian dollar terms are approaching the 10-year highs reached in mid-2010, after the Feb. 27 Chilean earthquake, and in 2011, when considerable volumes of NBSK were being used in China as a DP extender.

McClay expects BSKP prices to then regain some positive traction before year-end as buyers, particularly in China, rebuild their stockpiles with relative low-priced pulp.

BHKP outlook. On the BHKP side, McClay said the demand/supply balance should remain fragile through the first quarter. He said demand should stay solid in North America and Europe as tissue paper output remains strong and as freesheet paper markets, particularly for uncoated grades, hold up better than their mechanical paper counterparts on a seasonal and cyclical basis, especially with the closure in early February of International Paper Co.’s (IP) fully integrated freshet paper mill in Courtland, Alabama.

McClay said the new BHKP capacity coming on this year will help push the global BHKP demand/capacity ratio to a four-year low of 86.3% in the third quarter of 2014, down from 94.7% in the fourth quarter of 2013.

“As such,” McClay wrote, “BHK prices will decline about 12% through Q3 from their current levels in China (a 10-year high level in Brazilian Real terms), after which some higher-cost BHK capacity, integrated and non-integrated, will be idled or closed permanently.”

By the fourth quarter of 2014, China’s paper and paperboard markets should be better balanced and growing more rapidly than in 2013, when total output advanced only 1% year-over-year, McClay wrote, saying that pulp buyers should then rebuild their pulp stockpiles with lower-priced pulp “to help fuel the start of a BHK pricing revival.”

North America market. Weather-related logistics problems continued to dominate in North America last week, with Western Canadian producers particularly affected by railcar backups around the continent. And during the week the Mid-Atlantic States and the Deep South were again slammed with harsh winter weather.

Late last week a producer source familiar with conditions in the Deep South said mills were running, “but everyone is on edge—employees are not coming in to the mill” because of the weather, which could lead to further complications if problems were to arise. And a North American agent said there were cases in the U.S. South of mills “cooking ice,” that is cooking about 90% wood chips and the rest being ice.

Sources have also noted pulp equipment problems in North America, both weather- and non weather-related. Problems in some standalone pulp mills have helped reduce supply even as issues at some integrated operations have helped boost demand.

The problems have also limited the immediate availability of spot tonnage of softwood and hardwood pulp, which has help boost spot prices.

Sources are mostly reporting spot NBSK tonnage in the mid-$700s/tonne in North America and spot NBHK tonnage in the mid-$600s/tonne, both up $10-$20/tonne.

In cases of immediate need, sources have cited NBSK at $850/tonne or above and NBHK at the low to mid- $700s/tonne.

The aforementioned agent said BHKP prices are probably $30-$50/tonne higher than a month ago for “desperation” cases, but he described them as “isolated, definitely short term.”

In recent days a producer source said regular spot NBSK pricing currently is $760-$770/tonne, up from $740-$760/tonne in January, while North American BHKP is $650-$670/tonne, up from $640-$650/tonne in January, “driven by logistic issues and supply.”

The agent said regular non-contractual NBSK is going for $750-$770/tonne (net), adding, “There’s not much softwood around.” He said southern bales are doing “a lot better than fluff,” for which some producers are seeking a $40/tonne increase.

A buyer for a U.S. specialty papermaker said SBSK spot pulp “wasn’t available” this month, not so much because of logistics issues but because of stepped-up demand from non-traditional customers, including an integrated mill that has had production issues.

The buyer said spot NBSK is being quoted at around $740/tonne fob, but that it’s difficult to find a means of getting it shipped because of the current rail and trucking limitations. “For the most part pulp is available, but they can’t get it to us” and this company’s pulp inventory buffer has been going down as the logistics ordeal has persisted, the buyer said.

“We’re not desperate yet but it’s all going to depend on the next few days and if the rail cars keep moving,” the buyer said late last week.

The producer source said NBSK could possibly see a $20/tonne price hike in March, while BHKP pricing likely would not go up. (Current gross prices, implemented in January, are $1,010/tonne for NBSK and $870/tonne for North American-produced hardwood grades.)

And he said there is nervousness about the paper side. “If paper can’t increase the price, pulp can’t go up,” he said. “We are close to that cycle now.” But the weak Canadian dollar (currently at US$0.91) could also put a lid on price hikes and make Canadian producers less eager to raise pulp prices, he and others have said.

There are reports that some papermakers having to take some downtime or slow production for lack of fiber, though most sources have been saying that this has not been the case.

A pulp sales executive said that while some customers paid higher freight costs to get pulp, some instead took downtime, using the time to do maintenance.

“All of my activities are concentrating on rail cars right now. I’m not concentrating on selling,” said a pulp sales executive for a Western Canadian producer. “It’s a challenge getting cars to the mill, then deciding who’s going to get what, then following along the rail … (and) keeping customers supplied.” He said this involves coming into the office early in the mornings and “checking where the rail cars are and why they didn’t move.”

He said he needs to receive 17 or 18 rail cars per day. Instead, lately, might get a slug of 50, then none for a week and a half, or he might get four or five a day, then none.

He said his customers are “chasing tanker cars and chemicals,” too, leading to conversations with people in mills with whom he doesn’t typically interact.

He said he tells would-be spot buyers that his company is currently supplying only contracted customers, because he does not want to take the risk of running out of pulp for the latter. “There’s still another month of this (winter weather),” he said. “I don’t think it’s even worth it for a high price.”

As to who pays for the extra logistical costs being incurred because of the weather-related delays, he said it depends on how the contracts were negotiated, but that producers are currently being more affected than customers. “I never thought it would get this bad,” he said, adding that when the next contracts are negotiated, “I’ll bet there will be more clauses.”

One of the supplier sources said he’s “never seen such a situation” with the weather and logistics. Noting a lack of rail cars and trucks, he said matters had improved some but that it would take three or four weeks to achieve stability. And he said some mills are moving up their maintenance schedules.

He said his company is sold out of NBSK, partly because of some production issues, and has had to turn away people who have been seeking supply.

For the week ending Feb. 8, FOEX Indexes Ltd. said the NBSK price in the U.S. gained $2.18/tonne, to $1,008.06/tonne.

In its Feb. 11 commentary, FOEX noted the short-term supply problems linked to the weather-related delivery and production issues and that spot prices have been rising.

FOEX said that with the retreat of graphic paper demand most likely continuing, 2104 would not likely experience a repeat of the 2013 market pulp demand hike, of 345,000 tonnes, or 4.7%.

Europe elements. Some NBSK producers are seeking a price of $930/tonne in Europe this month, and it remains to be seen what the price range will be.

BHKP producers are trying to move up their prices in Europe in February. They also tried to do so in January, but some sources said the overall BEKP price range was unchanged at $760-$770/tonne.

“We are pretty fully booked and the market is still quite firm,” said a sales executive for a major NBSK producer, who also noted that the FOEX index had moved up once again. He said that contrary to the decline some analysts have forecast, “I don’t see any clouds on the horizon.”

He said the January price went up $5-$10/tonne to $910-$920/tonne; this is also the January price Brian McClay showed in his monthly report.

(In the earnings report released Feb. 14 by NBSK producer Mercer International Inc., CEO Jimmy Lee said a $15/tonne price increase was implemented in January and that the company expects NBSK pulp prices “to continue their moderate upward trend over the first half of 2014.”)

The aforementioned NBSK sales executive said there is momentum for the February price to move up $5-$10/tonne, to about $915-$925/tonne. He said his company expects the price to increase again in March but that it is waiting for the January Pulp and Paper Products Council (PPPC) “World 20” market pulp statistics report before deciding its plans.

As for the gross prices being on the higher end of the historical spectrum, he said, “If you look at the net prices, the prices are not high.” But he noted also the concern about the decline in demand for graphic papers in Europe and the closures of manufacturing operations.

And a North American pulp sales agent said, “Everyone is worried about the market in Europe. It’s more fragmented and there’s no market leader like IP (shutting down) Courtland.”

For the week ending Feb. 8, FOEX said the NBSK price in Europe rose $3.44/tonne, to $915.99/tonne, while dropping in euros by 35 cents/tonne, to €674.81/tonne, as the euro strengthened again in the previous week against the U.S. dollar, this time by 0.4%. (The euro is currently at US$1.37030.)

FOEX said the BHKP price fell $2.11/tonne, to $766.73/tonne, while in euros it decreased €3.99/tonne, to €564.85/tonne.

In its Feb. 11 commentary, FOEX said supply problems have supported softwood pulp producers in their price increase efforts. It noted the repeatedly difficult weather conditions that have delayed shipments of NBSK from North America and the late bleached radiata kraft pulp (BRKP) deliveries from Chile because of the recent port strikes in that country, along with some production losses in Europe, particularly from Stora Enso Oyj’s Skoghall, Sweden, mill.

(Europulp said on Feb. 14 that European woodpulp port stocks inched up an estimated 1,013 tonnes in January over December, or 0.1%, to 1,023,537 tonnes; in the previous 14 years, January stocks were lower than December’s stocks 10 times. The January 2014 stocks declined an estimated 21,848 tonnes, or 2.1%, compared to those of January 2013.)

Regarding the new pulp capacity from Suzano Papel e Cellulose SA’s new Maranhão, Brazil, line and from Montes del Plata in Uruguay, FOEX said tonnage from the former is expected in Europe at the end of the first quarter or early in the second quarter, and that start-up of the latter is expected in late March, which would put arrival of its pulp in Europe toward the end of the second quarter.

“While the market appears pretty well balanced for the time being, the approaching growth in hardwood supply volumes and persisting problems of getting paper prices up put downward pressure on pulp prices,” FOEX wrote, adding that the already $150/tonne price gap between NBSK and BEKP is likely to support hardwood pulp demand.

China back. Chinese pulp buyers were back on the job last week following the Lunar New Year holiday celebrations.

Pulp seller sources in North America said it doesn’t appear that their Chinese customers have high inventories. They said those customers that curtailed production during the holiday are running again, but noted that running rates in China are still low for all kinds of paper production because of overcapacity.

A sales executive for a European NBSK producer said that his contacts said Finnish NBSK producers don’t have much extra pulp in China these days.

In the face of logistics delays ahead of the Lunar New Year holiday, Chinese customers were “screaming for pulp,” said a North American-based agent, noting that when customers have comfortable stocks, they are quiet and don’t worry about shipping delays.

The weather situation in North America “is certainly supporting the list prices” and customers aren’t taking a strong stance on NBSK pricing, he said.

A sales executive for a BCTMP producer said, “Demand we see is still firm and customers have heat on us to ensure agreed delivery times are met.”

Another North American agent said his sense is that BSKP pulp producers could get another $20/tonne in March. The China market “is probably stronger than $10, and $30 is okay when the price is $550 and papermakers are making decent margins,” he said.

A major Chinese pulp buyer said February BSKP pricing in China is going through because the North American market is improving and the European market is more stable.

The $10/tonne price increase for China in February is “okay,” he said, “but the volume will be lower than before because of the cost,” which is a hardship for all kinds of papermakers in China, he said.

During the Lunar New Year holiday, more paper machines took downtime than in previous years, and while they are back up now, their operating rates both before and after the holiday “are not high,” he said.

The holiday downtime didn’t have much of an impact on pulp demand, since China imports “such a huge quantity, so one week doesn’t have much effect,” he said.

He doesn’t think conditions will be strong enough in China in March to support a softwood pulp price increase. “Now it’s high enough,” he added. “I don’t think they can get more.” As well, the price gap with short fiber “is so huge…I think it will force manufacturers to use more hardwood,” especially if NBSK producers raise their prices further, he said. He said there is still some room, technically, to use more hardwood pulp, especially if it is a matter of cost control.

As well, the firm Chinese renminbi makes it a challenge for Chinese papermakers to control costs, “so I hope [pulp] producers are thinking about the currency situation,” he said.

In Mercer’s earnings report released Feb. 14, CEO Jimmy Lee said if the additional new hardwood pulp supply coming on this year is not absorbed by demand growth—he noted it is largely targeted at the growing demand for pulp by tissue makers, particularly in China—this supply increase could put downward pressure on NBSK pulp prices.

“However,” Lee said, “we believe customers’ ability to further substitute NBSK pulp for lower priced hardwood pulp is limited by the strength characteristic provided by NBSK pulp that large modern paper machines need to run lower basis weight paper products efficiently.”

As for BHKP prices in February, the Chinese pulp buyer source said his company wants a decrease of $5-$10/tonne, depending on quantity and other factors, and he said the January price fell $5-$10/tonne or more, bringing the net price to around $600/tonne for Brazilian BEKP and to $580-$590/tonne for Indonesian BHKP, depending on the grade. Though there have been weather-related issues and market and/or maintenance downtime in Indonesia, he said it “is still easy” to get Indonesian hardwood.

He also downplayed the effect of the delayed shipments from North America and Chile, saying that customers have learned the importance of placing orders four or five months ahead. “Our transportation time is getting longer and longer,” he said. “We don’t want to worry too much about the shipments.”

As for pulp sellers’ assertions that customers are seeking quick arrivals of shipments, he said this might be for “special cases” and that it would be happening more for traders, who have already sold the pulp and contracted to provide it to end-users by a particular time. Also he said that with Chinese banks restricting money-lending, letters of credit can’t be opened for an order until a previously ordered shipment has arrived and been paid for.

He said medium-sized pulp customers tend to rely on traders, especially for BSKP, whereas major end-users “have to be prepared.”

For the week ending Feb. 8, FOEX said the NBSK price in China rose $2.00/tonne, to $748.92/tonne, and that the BHKP price gained $2.16/tonne, to $660.33/tonne. It said the prices received were still from the holiday week with limited comments on the market conditions.

In its Feb. 11 commentary, FOEX noted that the price gap between softwood and hardwood pulp in China is not as wide as it is in Europe or North America, but that nevertheless it is not far from $90/tonne, “which is already wider than the historical average.”

FOEX said the BSKP market was well balanced in January and that in February there would be many cases of late arrivals of pulp from North America and Chile. “As there is no good knowledge of the pulp inventories in China, at ports or at customers, the impact of these delays on the availability of pulp will be revealed through February/early March,” FOEX wrote.

FOEX said short-fiber pulp prices were under downside pressure prior to the holiday period, with weak demand in some Asian countries and the increasing supplies from Latin America by the second quarter keeping the pressure on. “However, at short term, the market is better balanced. Indonesian producers have problems with heavy rains affecting wood availability and the weather-related problems and good regional pull in North America have reduced BCTMP supplies to the Chinese market,” FOEX wrote. “Several producers have announced a price increase in BEKP and, apparently, with some success,” since the benchmark edged higher for the second week in a row, FOEX said.

Korea results. Bleached pulp prices in Korea were again unchanged in January over December, as was the case in December over November, according to an agent doing business in the country. There was a $10/tonne downward movement for BHKP prices. BCTMP prices were flat, as was the price of unbleached kraft pulp (UKP).

Theses are the list prices he showed for January (net prices in parentheses):

•NBSK: $845/tonne ($760-$780/tonne)

•BRKP: $815/tonne ($735-$745/tonne)

•SBSK: $805/tonne ($715-$725/tonne)

•NBHK: $660/tonne ($580-$590/tonne)

•BEKP: $660/tonne ($605-$620/tonne)

•SBHK: $660/tonne ($580-$610/tonne)

•Indonesian acacia: $660/tonne ($600-$610/tonne)

•Indonesian mixed: $650/tonne ($580-$600/tonne) (A typographical error in the net price in the original posting has been corrected.)

•BCTMP, aspen 85-bright: $660/tonne

•BCTMP, softwood: $650/tonne

•UKP: $700/tonne

In his written commentary, the agent said BSKP customers have been demanding more volume recently while the price is strong and that many customers are seeking new suppliers, including for SBSK.

On the hardwood pulp side, the January price was slow in coming, with Chile's Celulosa Arauco y Constitución SA announcing a $10/tonne decrease “after long consideration” and other suppliers silent until that time. Most announced their price prior to the Lunar New Year holiday and all of the BEKP suppliers finalized their orders before the holiday, he said. 

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