Pulp market roundup: Softwood prices challenged in China, where hardwood prices have already slipped, European buyers putting pressure on hardwood but not softwood prices, North America still stable

Diane Keaton

LOS ANGELES , March 30, 2014 (Industry Intelligence Inc.) – Prices of bleached softwood kraft pulp (BSKP) and bleached hardwood kraft pulp (BHKP) are under increasing pressure in China and hardwood pulp prices are being pressured in Europe, but in North America, the prices remain stable.

Chinese northern bleached softwood kraft (NBSK) buyers have been hesitating to close chunks of their March business unless they can get a price break. And in contrast to recent months, there are no announcements of price increases for April. Chile’s Celulosa Arauco y Constitución SA announced unchanged April prices for China; sources said this underscored that China prices have likely peaked.

Separately, an Arauco official said the port situation in Chile is back to normal following the strikes earlier this year but that the company still has a pulp backlog and “could not catch up during March as originally planned.”

Arauco’s China prices include US$750/tonne (net) for bleached radiata kraft pulp (BRKP) and $720/tonne (net) for unbleached kraft pulp (UKP). NBSK producers had been seeking a $10/tonne March price hike in China, to $770/tonne for commodity grade and $780/tonne for reinforcement grade.

Also Arauco did not change its bleached eucalyptus kraft pulp (BEKP) pricing of $720/tonne (list) and $620/tonne (net).

As previously reported in recent weeks, Industry Intelligence sources have said that several major South American BEKP producers have reduced their net price in China to below $600/tonne, typically in the $570-$590/tonne range, with spot prices in the $560-$575/tonne range. And in Europe, BEKP prices began faltering in February and are continuing to erode in March, sources said.

Meanwhile, the market in North America remains strong, driven by solid demand but also in no small part by weather-related delivery problems.

The weather issues have especially affected production in the U.S. South, including fluff pulp, which is now in very tight supply, southern bleached softwood kraft (SBSK) and southern bleached hardwood kraft (SBHK).

On March 24, International Paper Co. (IP) announced a global April 1 $30/tonne increase for fluff pulp. This brings IP’s April increase in the Middle East, North Africa and Turkey to $55/tonne because IP had earlier announced an April 1 $25/tonne fluff pulp increase for these locations.

Some Industry Intelligence sources in the Mediterranean region said they weren’t surprised by IP’s move. A major buyer named another large-scale buyer in the region that he said had been “begging” to buy 5,000 tonnes from all suppliers “and the pulp is not available.” An agent in the area said the announcement serves to underscore “how tight and strong” the fluff pulp market is. Buyers are “begging for fluff” and there are no offers in the market, he said, adding that there is “no doubt” that the price will soon be $800/tonne and above. (Sources said prices in the region shot up to the mid- to high $700s/tonne in recent weeks.)

Some industry analysts have been saying they expect BSKP prices to begin to falter in the coming months. In a March 25 research note, RBC Dominion Securities Inc. paper and forest products industry analyst Paul Quinn said he sees NBSK weakness by mid-2014. He noted the expectation that in the coming months, fluff pulp producers would be selling more roll SBSK, that integrated paper mills in North America and Europe would be selling pulp, and that there would be continued volumes from Ilim Group’s new NBSK line in Bratsk, Russia.

In the second half of 2014, softwood markets should also face pressure as hardwood additions ramp up in Latin America and China, encouraging further substitution from softwood, Quinn wrote, saying that he expects North American NBSK list prices to average $945/tonne in fiscal year 2014 and $935/tonne in fiscal years 2015 and 2016.

Pulp stats. On March 25 the Pulp and Paper Products Council (PPPC) released the February World 20 chemical market pulp producer statistics, showing that stocks fell one day from January, to 36 days. Softwood sulfate pulp stocks decreased one day, to 29 days, and hardwood sulfate pulp stocks increased one day, to 45 days (standard calculation). In February 2013, the total was also 36 days, including 31 days for softwood pulp and 41 days for hardwood pulp.

February 2014 shipments of 3.486 million tonnes fell 1.0% year-over-year, primarily because of an 8.2% decrease in deliveries to China. Shipments to North America and Western Europe dropped 1.6% and 0.9% year-over-year, respectively. The February 2014 shipment-to-capacity rate was 94%, compared to 96% in February 2013.

Port strike settled. Last week the container truckers' strike involving more than 1,500 union and non-union truckers at Port Metro Vancouver in British Columbia was settled. Workers were to return to the job on March 26.

On March 27, The Vancouver Sun reported that the port’s VP of planning and operations Peter Xotta said it would likely take up to two weeks for trucking activity at the port to return to normal as truckers and companies ramped up their operations.

Xotta noted the ongoing weather-related challenges of the rail supply chain, which created a buildup of cargo in Vancouver. “So it could be as much as six to eight weeks from now before the supply chain is fully back to normal operating conditions,” Xotta said.

The newspaper reported that affected business owners had to pay up to C$455 per container per day to store their goods at the port and that they had to pay thousands of dollars more for trucks to get their containers out.

As Industry Intelligence has previously reported, pulp producers in Western Canada that export their product in containers were severely affected by the strike at the port, which began Feb. 26 among non-unionized truckers before spreading to unionized truckers. The producers have also been crippled by the railcar shortage, which has left them unable to get shipments out of their mills to a great extent, leaving pulp to pile up in every available warehouse or other empty space and in mill parking lots.

North America market. There are no announcements for pulp price increases for North America for April, with sources generally believing the peak pricing has been reached. Market conditions are expected to be about the same as in March.

The list prices for March are $1,030/tonne for NBSK and $990/tonne for SBSK, both up $20/tonne from February, and, depending on the producer, $870-$880/tonne for northern bleached hardwood kraft (NBHK) and SBHK, flat to up $10/tonne. The BEKP price has been at $870/tonne for several months.

For the week ending March 22, FOEX Indexes Ltd. said the NBSK price in the U.S. headed higher again, this time by $2.80/tonne, to $1,019.86/tonne, with supply-chain problems having tightened the local markets, “at least temporarily.”

Sources said spot NBSK prices are in the mid-to high $700s/tonne, with some in the low $800s/tonne, and that NBHK spot prices are in the mid- to high $600s/tonne, with a limited amount still in the $620-$630/tonne range, depending on location, and some as high as in the mid-$700s/tonne for buyers caught short by the delivery problems.

A sales executive for a producer in recent days named a major Canadian pulp mill that he said was still on a 50% allocation for railcars, adding that in reality, only about a quarter of the railcars might show up on a given day. “If we tell the customer the delivery schedule, he needs to phone back (to see when it is actually arriving),” he said, adding that some customers don’t understand the situation. He said deliveries might get back to normal in April.

Meanwhile, he and others have said that as time has gone on, they have been able to find ways around the problems to some extent, and now there is “less emergency and panic.”

He said this year’s drama wouldn’t have happened if suppliers had been able to keep more incremental inventory in warehouses and buyers had been able to keep sufficient stock on hand for the winter, as was the practice in the past. He noted that that didn’t happen in the past winter because nowadays companies are pressured to improve their cash flow at the end of the year. But after the delivery miseries of recent months, he said he expects to see some return to traditional practices in the coming winter.

Though his company has suffered weather-related financial losses this year, the pressure was eased to some extent by the strong pulp market and the weakening of the Canadian dollar, he said. (Currently it is at US$0.90347.) “For most companies, it won’t be pretty,” he said in regard to the first quarter numbers. “We will try in the second quarter to recoup what we lost. It’s not a good start of the year.”

Some major North American pulp and paper producers have announced severe financial hits. Resolute Forest Products Inc. said it took a $50 million hit in January/February because of the weather and unplanned maintenance downtime and that it was continuing to have similar weather conditions in March, as RBC’s Paul Quinn wrote on March 19.

Quinn also noted that IP provided guidance for higher first quarter costs, by $40 million to $50 million, due to severe weather, that Clearwater Paper Corp. has announced negative cost impacts related to weather and that Rock-Tenn Co. has guided for weather-related costs of more than $30 million. “Weather has likely impacted the whole group,” Quinn wrote, referring to the paper and packaging sector.

A sales executive for a BEKP producer lamented that there were “any number of spot opportunities” he could have taken advantage of, with desperate would-be buyers quoting prices of $740-$750/tonne, but that he didn’t have the pulp. “We’re not unique. I think everyone is running tight,” he said, adding that the new tonnage coming on stream this year has yet to hit the market except for a small shipment known to have reached North America earlier in March.

“The weather played a huge role in the last couple of months for anyone that had spot opportunities,” he said. “Every shipper has car shortages.” He said his company would still be “quite a few” railcars short in March and that the pulp would be shipped in April. He said he expects problems to be straightened out by the end of April.

“There’s a lot of demand for pulp but it’s because nothing’s moving,” said a Midwestern buyer, citing rail and truck issues. But he said that starting in mid-March, he began getting more spot offers of both BSKP and BHKP from Western Canadian producers, which apparently at that point were better able to transport their product. Noting that spot prices “went through the roof” during the worst of the logistical challenges, he said the situation is not as critical now but that he expects it will still take a few months before it is back to normal.

He thinks spot prices will start faltering a bit in April, but another buyer in the Midwest said late last week that he thinks the prices of both BSKP and BHKP will hold in April and May. As for the weather-related delivery issues, he said, “I’m hoping in a month or so it would improve slightly. We’ll see what happens.”

Paper side. Paper statistics released by the PPPC for February showed decelerating demand declines for most grades, with the uncoated freesheet (UFS) operating rate, at 98%, at its highest level in six years, while the overall rate was 92%, RBC’s Paul Quinn wrote in a March 24 research note. The higher rates are supported by UFS producers having removed 495,000 tons/year of capacity in 2012 and 1.053 million tons/year over the fourth quarter of 2013-first quarter of 2014, Quinn noted.

Quinn said shipments fell 3.9% year-over-year and 7.2% month-over-month. The year-over-year shipments decline affected all four sectors, with coated groundwood (CGW) down 5.4%, uncoated groundwood (UCGW) falling 3.2%, coated freesheet (CFS) slipping 1.3%, and UFS shipments declining 4.6%. Total printing and writing paper demand dropped 4.4% year-over-year and 7.3% month-over-month, with all sectors in the negative ranks.

Separately, on March 28, the American Forest & Paper Association (AF&PA) released its February 2014 Monthly Statistics of Paper, Paperboard & Wood Pulp, showing that the total output of paper and paperboard decreased 1.3% from a year ago, marking four straight months of year-over-year declines after four consecutive months of gains.

The February 2014 output of paper slid 4.8% year-over-year on an operating rate of 87.8%, down from February 2013’s rate of 89.0%. The February 2014 production of paperboard rose 1.1% year-over-year, on an operating rate of 95.3%, which was slightly down from February 2013’s 95.4%.

For both paper and paperboard, the February 2014 operating rate was 92.2%, declining from February 2013’s 92.7%.

Calhoun upgrade. On March 27, Resolute announced that it would be investing $105 million in improvements at its pulp and paper mill in Calhoun, Tennessee, including a new continuous pulp digester and other woodchip processing equipment, to be completed in mid-2016. It said the project would increase pulp capacity and lower the mill’s costs and improve its versatility. It said the mill’s current capacity is approximately 609,000 tonnes/year of market pulp, specialty papers, and newsprint, and that it has a stable source of fiber.

A source familiar with the company said that on the pulp side, about 30% is softwood and about 70% is hardwood and that about 120,000 tonnes/year of pulp is sold on the market. He said the planned upgrades could result in another 50,000 tonnes/year for the market, although it might be less depending on the kind of paper and the base weights being produced at the site. He noted that the Calhoun paper side is compensating for the now-shuttered paper machine at the company’s Fort Frances, Ontario, mill.

Europe settling. A sales executive for a Brazilian BEKP supplier said customers in Europe have been putting on much more pressure at the end of March than at the beginning and that he expected the price to drop by at least $5/tonne and perhaps by $10/tonne. This would put his company’s price at an average of $760/tonne, with some a little above, and some, in Italy, a bit lower. (Sources mostly put the February prices in Northern Europe in the $760-$770/tonne range.)

He said he has heard that some competitors had dropped their price in Italy to $750/tonne, starting at the end of February, “but now it’s really going on” among competitors, he said.

Late last week he said about 40% of his company’s business in Europe had yet to be concluded, which he noted usually happens when customers are really putting on the pressure. “Our intention is to confirm the volume,” as necessary, he said.

Sources have said they expected the NBSK price in Europe to continue inching up in March, perhaps by about $5/tonne, typically to $925/tonne. The price has been going up about $5-$10/tonne since December.

For the week ending March 22, FOEX said the NBSK price in Europe advanced 73 cents, to $921.90/tonne, while in euros it went up €5.53/tonne, to €669.01/tonne, as the euro weakened from the previous week by 0.7%.

(The euro is currently at US$1.37476. The aforementioned Brazilian BEKP supplier said the euro versus the dollar “is not helping us a lot.”)

On the BHKP side, the price gained 61 cents, to $765.33/tonne, while in euros it rose €4.60/tonne, to €555.39/tonne.

In its March 25 remarks, FOEX said the softwood pulp market remains firm, even though the first data available regarding the European pulp market in February “is relatively weak.”

The market balance for hardwood pulp remains weaker than in softwood pulp, “although the wood supply problems and production curtailments in Indonesia and weather-related logistics interruptions in North America are balancing the effects of the anticipated volumes of pulp from the new projects reaching the markets at some point in Q2/Q3,” FOEX wrote.

Pöls explosion. Zellstoff Pöls AG’s NBSK pulp mill in Pöls, Austria, was shut temporarily early last week when a recovery boiler exploded. The accident on the night of March 23 on Recovery Boiler No. 2 also injured a worker. On March 25 the mill was restarted, using Recovery Boiler No. 1, a mill official said.

Zellstoff Pöls, which is owned by Heinzel Group, has a capacity of 400,000 tonnes/year of NSBK, according to the company website. Its bleached kraft paper capacity is 80,000 tonnes/year. The paper production wasn’t affected by the accident, the official said.

China challenging. For the week ending March 22, FOEX wrote that the NBSK price in China slipped 6 cents, to $758.69/tonne, while the BHKP price slid $9.64/tonne, to $632.54/tonne.

The China market “is clearly more difficult but (it is) hard to see the real reason,” said a sales executive for a major BSKP supplier to China, adding that on the BHKP side, there is an “expectation of oversupply in hardwood” but that Suzano Papel e Celulose SA’s new mill in Maranhão, Brazil, is not yet in the market and that the new Montes del Plata mill in Uruguay has not yet started.

Following Shanghai Pulp Week last week, sources expressed concern that a particular major BSKP supplier to China (not North American) might, in the words of another BSKP producer, “capitulate to price pressure,” and agree to a sizeable price drop in order to keep its volumes flowing into China, which would instigate others to follow suit.

The producer said his take on Shanghai Pulp Week is that the softwood pulp market “still feels really tight and the price in China is fully justified,” both on a supply/demand basis and a “cost-to-produce” basis. But at the same time, he said he has come to realize that as Chinese producers of paper and board, and also soon to be tissue, “can’t make money because of their huge capacity expansions in recent years and now with supply far exceeding demand, it is the overseas pulp producers’ role to drop prices so they can still be profitable.”

But he said Chinese customers might be three or four months too early, sitting on their order books now in an effort to get the suppliers to crack on pricing. “Usually the Chinese get the timing right, but not always,” he said.

A Chinese pulp sales agent said the China market became increasingly challenging in March as the month wore on. Although Arauco got its $10/tonne March increase early on, to $750/tonne (net) for BRKP, customers were balking about taking their full March volumes of Canadian NBSK and paying the $10/tonne increase, to $770/tonne (list) for commodity grade and $780/tonne (list) for specialty grade, he said. But if the suppliers were to agree to unchanged pricing, they might be able to get the business, he added.

He said pulp prices are “on the high side now;” that the differential with BRKP is too wide; that the “big gap” between hardwood and softwood pulp needs to narrow; that the disparity between the imported price and the local price, now about $730/tonne, is an issue; and that end users generally have good backlogs and don’t need to place new orders.

Also, like other sources referring to China’ internal dynamics, he said, “The economy is not that good, paper prices are not that good, and the currency situation is not that good.”

As have others, he said the net price of BEKP in China has dropped below $600/tonne. “Every month it’s dropping,” he said, describing spot prices as about $560-$570/tonne. He said the BEKP price will probably go down $10-$20/tonne in April. “If it goes to $540 net-net there will be a lot of orders from customers,” he said, adding that $530/tonne would be even better for customers given their weakened currency.

A sales executive for a Brazilian BEKP supplier said the market in China was quite balanced at the beginning of March, but as of late last week, we are receiving a lot of pressure,” as though customers think Suzano’s new tonnage for China is already “100%” there. “It is very, very tough right now. The customers are quite resistant,” he said. “They are putting a lot of pressure for a price reduction, but we are still fighting.” Noting late last week that 30% of his company’s March volume for China still hadn’t been finalized, he said he didn’t know what he would hear on the last day of March.

Meanwhile, he said he expected the March price to fall “at least $10-$15/tonne in Asia, especially in China, resulting in net price in China for his company of $580-$590/tonne. (As reported previously, that level has already been reached in some cases, with a recent report naming certain major Brazilian producers selling in China from $570/tonne (net) to $590/tonne (net), depending on the producer, amid subdued demand, with a spot range of $560-$575/tonne.)

He said the April price would likely decrease no more than $5-$10/tonne.

Looking at bleached chemi-thermomechanical pulp (BCTMP), a sales executive for a major producer said the sector “remains well-sold and we are looking to be unchanged for April.” He said it is realistic that BCTMP will be priced higher than BHKP over the next few months, “particularly for customers in the board industry, given the strong demand and the order backlogs of the BCTMP producers.”

“Buyers will try to push BHKP producers for further price decreases over the next few months, but there appears to be more of a resolve on the part of producers not to go to the super-low levels that we have seen in previous downturns,” he said.

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