Pulp market roundup: Some key softwood producers reduce their April prices in China, where hardwood prices continue downward; in Europe, March hardwood price falls while softwood continues slightly up, pricing for both grades still solid in North America

Diane Keaton

LOS ANGELES , April 6, 2014 (Industry Intelligence Inc.) – Responding to customer pressure, Chile’s Celulosa Arauco y Constitución SA and Russia’s Ilim Group have dropped their April bleached softwood kraft pulp (BSKP) prices in China, where prices of bleached eucalyptus kraft pulp (BEKP), have already been heading down.

In Northern Europe, the March price of BEKP moved down a bit while BSKP prices increased a bit; the pressure on BEKP and other bleached hardwood kraft pulp (BHKP) is expected to continue in April.

And in North America, prices remain solid for both BSKP and BHKP, although spot prices are more in a “normal” range now, without some of the spiked levels charged earlier this year for buyers who ran short of pulp due to weather-related delivery problems.

Echoing others, a market pulp consultant said softwood pulp supply “doesn’t feel like it’s loose at all,” given the weather-related delivery issues.

However, in China, the customers have made their point.

As reported late last week, various market sources have said that Russia’s Ilim Group reduced its April NBSK price in China by anywhere from US$30/tonne to US$50/tonne, on a case-by-case basis, and also that Ilim increased the allocation of its shipped (CFR) tonnage, which also benefits buyers. This has not been confirmed with Ilim. Sources said the company’s March prices in China for NBSK were $740/tonne CFR and $700/tonne DAF.

Arauco confirmed that it has reduced its April price of bleached radiata kraft pulp (BRKP) by $20/tonne, to $730/tonne (net). Arauco had previously announced that its April price would be unchanged, but a company official said it agreed on the $20/tonne reduction after “tough negotiations,” and that, at $730/tonne, it has finalized almost 90% of its allocated volume for April.

Regarding the $20/tonne drop, he said, “Whether this is due to currency devaluation or supply/demand is difficult to know.” He said the main factors are the “huge gap” between the prices of BEKP and BSKP, the (reduced) price from Russian suppliers and the seasonal adjustment normally seen in May/June but which he said is a month
earlier this year.

(Another BSKP producer source said the $20/tonne drop “is not really a price decrease, but only a currency adjustment” and that Chinese customers are still paying the same as if the price had not been dropped.)

Meanwhile, late last week northern bleached softwood kraft (NBSK) pulp producer Mercer International Inc. was announcing to customers in Asia that it is keeping its April price unchanged, which includes a China list price of $770/tonne.

At week’s end, it wasn’t clear what other Canadian (or Nordic) NBSK producers would be doing, pricewise, in China this month. The March NBSK list prices were $770/tonne for commodity grade and $780/tonne for reinforcement grade, both up $10/tonne.

As reported in mid-March, sources said the net NBSK price in China was around $740/tonne for traders and $750/tonne for end-users. Last week a pulp sales agent selling into China said the price for stock NBSK inventory is $730-$740/tonne (net).

Montes del Plata. Sources said the Montes del Plata pulp mill in Uruguay is not expected to start up until the end of April or later, meaning that the first shipment would be at the end of May or not until June. (As reported March 2, there was a Stora Enso briefing to the effect that heavy rains had caused major problems with the effluent treating system and that it would have to be repaired and then to run for a while before authorities would issue a permit, all of which would last into mid-April or so.)

The much-delayed 1.3 million tonnes/year Montes del Plata is a joint project of Arauco and Stora Enso Oyj in Finland, and each company will be selling its share separately. (The capacity figure as been corrected since the original posting.)

News notes. The magnitude 8.2 earthquake that struck Chile’s northern coast April 1 did not affect the pulp mills of Arauco or the pulp and paper mills of Empresas CMPC SA, according to contacts in both companies. In contrast, the mills of both Arauco and CMPC were damaged in the 8.8 magnitude earthquake that struck Chile on Feb. 27, 2010, which also badly damaged the country’s transport infrastructure.

•FOEX Indexes Ltd. has been sold to U.K. private equity firm, AXIO Data Group Ltd., which also owns RISI Inc., FOEX announced April 3. “Through AXIO’s ownership, FOEX and RISI will work together to improve price monitoring practices across the global forest products industry,” FOEX said in the announcement. “FOEX will continue to manage and administer all contracts for commercial use of PIX indices, and RISI will become the exclusive re-seller of FOEX pulp and paper data subscriptions.” It said Timo Teräs will remain managing director of FOEX and that all FOEX staff will remain, as will the PIX indices and methodology.

•The railcar shortage is still critical in North America. The Canadian forest products industry has been especially hard hit not only by this year’s extreme winter weather, but also it has suffered for some time as railcars went to commodities such as crude oil. And as of April 7, the Canadian National Railway Co. (CN) and Canadian Pacific Railway Ltd. (CP) are being required to move a combined 1 million tonnes of grain a week, amounting to about 11,000 railcars a week, or face a fine of C$100,000 a day. The Canadian government put this legislation in place when much of the 2013 harvest, which was about 35% bigger than average, was not getting shipped during this past winter, The Globe and Mail noted in an April 2 report.

A sales executive for a Western Canadian producer said pulp producers have been describing their railcar shortage as having worsened as time goes by, and that it is now being exacerbated by the grain-shipping requirement. Given the backup caused by the ongoing railcar shortage and the month-long container truckers’ strike at Port Metro Vancouver in British Columbia, which ended March 25, the source said March pulp volumes will be shipped to China in April and May or perhaps not until June.

•Indonesia’s Asia Pacific Resources International Holdings Ltd. (APRIL) plans to reduce its pulp output by 200,000 tonnes between now and June as it reviews its fiber supply chains, the Jakarta Globe reported March 31.

The company’s Kusnan Rahmin said the review would determine whether its wood suppliers are sourcing in High Conservation Value Forest (HCVF).

North America angle. Sources are reporting mostly unchanged pulp prices in April compared to March in North America and some noted they are no longer seeing the spiked spot prices for buyers who were caught short earlier because of weather-related delivery problems.

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

Overall spot prices are in the mid-to high $700s/tonne to $800/tonne for NBSK. The NBHK spot prices are in the mid- to high $600s/tonne to $700/tonne. Some are still in the $620-$630/tonne range for papermakers that are located close to the pulp mills.

A New England buyer said that while his company’s paper deliveries are now going OK, his pulp suppliers are still struggling with shipments to his region because of their lack of railcars, including producers in Western Canada and the U.S. South and also those shipping from the Port of Baltimore.

A North American pulp sales agent said deliveries are still erratic, noting a buyer that just got “three weeks’ worth of fiber dumped on his door.” But overall, the kinks in the pipeline appear to be straightening out now, he said. “There has been lots of hard work by the buyers, a lot of good work done by everybody,” he said, adding that North American pulp producers tell him they’ve “never seen anything like (this year’s conditions) in 20 or 25 years.”

For the week ending March 29, FOEX said the NBSK price in the U.S. was unchanged, closing at $1,019.86/tonne; this followed a $2.80/tonne increase in the previous week.

In its commentary on April 1, FOEX said the 1.6% decline in February pulp shipments reflects the reduced output of printing and writing papers and tissue in January/February, but it noted that the harsh winter in North America has limited pulp deliveries, as did the truckers’ strike at the Vancouver port.

Paper prices. In a March 31 research note, RBC Dominion Securities Inc. paper and forest products industry analyst Paul Quinn observed the effort by papermakers to get their announced price increases in North America. April will be the key month for the uncoated freesheet (UFS) hike, he wrote.

He said UFS producers are implementing a ~$70/ton March 2014 price increase following the industry’s $60/ton October 2013 price initiative, which was completed by late January with $20/ton realized on cutsize and $40-$50/ton on offset and printing/converting grades. For cutsize, which amounts to 40% of industry shipments, demand was especially hard hit by the severe weather in the U.S. East, he said.

“With IP (International Paper Co.) having closed significant cutsize capacity in the first week of February, we anticipate further pricing momentum in benchmark prices,” he wrote.

“However, CFS (coated freesheet) producers may increasingly turn off their coaters and produce more uncoated offset as UFS realizations become more attractive,” Quinn wrote, noting also that Verso Paper Corp. and NewPage Corp. had 188,000 tons/year of UFS capacity in 2013.

Some, but not all, CFS producers are trying for $40/tonne increases. But in his latest Reel Time report, editor Verle Sutton said there was a $10/ton CFS decline in March and that there would be “perhaps a $5/ton drop in April.”

He noted that CFS manufacturers in the U.S. had to take downtime in February at the same time as they reduced high mill inventories (by 10,100 tons), and he described CFS inventories as “still very high.”

A papermaker source, also noting CFS market-related downtime, commented to Industry Intelligence that it is difficult “to go out in a weak market and ask customers for $40 more.”

Europe comments. The March NBSK price in Northern Europe was $925/tonne, up $5/tonne, sources have said, with a market pulp consultant commenting that the increase of just $5/tonne was a disappointment on the pulp producer side.

And the weakened BEKP prices in March are “just the beginning of it,” he said.

Sources have mostly reported that the BEKP price in Northern Europe dropped about $5-$10/tonne, mostly to about $760/tonne or a bit above, although a pulp sales executive (not BEKP) said, “I don’t see too much pressure in Europe yet. The demands appear muted.” He described the situation as “a gentle fall so far.”

Looking at overall conditions in Europe, the market pulp consultant said, “It’s going to be a tough summer,” given the new capacity coming on and the underlying dynamics including mills closing. It’s a “negative sentiment,” he said.

A pulp sales agent in Italy said that for March, the NBSK price (about $920/tonne) was “unchanged in spite of all of the rumors we have heard of tight market conditions.” Given the different volume rates and the DAP terms for some customers, he said the NBSK net price is quite favorable and that “is clear that the big buyers” don’t need to turn to BRKP, at $715-$725/tonne (net) or SBSK, at $700/tonne (net).

Fluff pulp demand is stable but prices are heading up, mainly driven by the good U.S. demand for baled SBSK and the reduced availability of NBSK from Canada due to delivery issues, he said. Fluff pulp customers believe the increase will be temporary, he said.

He said the general feeling is that the NBSK price will come down, now that various delivery problems are clearing up and that the BEKP price is falling.

He said BEKP lost $10-$15/tonne, depending on volume, to an average $745/tonne, and that he wasn’t aware of spot offers. (Other sources have said a number of producers had a $750/tonne price in March in Italy.)

He said customers in Italy have noted that Chinese customers are sitting on their order books as they wait for both softwood and hardwood prices to slip. He has also been hearing that Chinese customers have reduced their purchases of wastepaper (brown grade) “and we have evidence of that not only for volume but price as well,” he said.

In Italy, he said tissue demand “is not as strong as it should be” during this time of year and that some machines might be taken down in conjunction with the May 1 labor holiday.

For the week ending March 29, FOEX said the NBSK price in Europe rose 69 cents, to $922.59/tonne, while in euros it increased €1.53/tonne, to €670.54/tonne, as the euro weakened by 0.2% against the U.S. dollar from the previous week.

(The euro is currently at US$1.36984.)

Regarding BHKP, FOEX said the price in Europe fell $3.25/tonne, to $762.08/tonne, while in euros it dropped €1.51/tonne, to €553.88/tonne.

Separately, the European Association of Graphic Paper Producers (Euro-Graph) is no longer providing prior-month statistics on the 25th of the following month, but rather is delaying them until two months later on the 25th of each month. Thus it did not provide the February 2014 data on March 25 and it said on its website that these statistics will instead be published on April 25.

Some industry analyst sources have reacted negatively. One said this would mess “everything up.” Another said the lack of transparency could make investors less willing to invest in European producers.

China update. Shanghai Pulp Week “was probably the turning point. Things can’t always go up, up, up or down, down, down,” said a sales executive for a Canadian NBSK producer.

Pulp had been enjoying momentum, but the Chinese government’s effort to suppress the economy is now affecting demand for pulp and paper and other commodities, with the currency devaluation putting prices under pressure, commented the source, echoing others.

Buyers anticipate that prices will come down, “simply because there is too much hardwood there. Softwood—there’s not a lot,” said the source. Another factor is the price gap in China between NBSK and BEKP of as much as $180/tonne on a net basis, which could induce papermakers to try to substitute with more hardwood pulp, thus sacrificing machine speed, the source said.

Meanwhile, some of the paper mills are not running as full and therefore pulp consumption is not growing, so there is less demand even as less pulp has been arriving in China, the source noted.

Although the market mood in China has changed, some sources say the supply situation hasn’t really changed. “I would say it is as tight as a couple of months ago,” said a BSKP source (not NBSK) in recent days.

A North American pulp seller who attended Shanghai Pulp Week said Chinese buyers’ stocks don’t appear to be overly high, but that the buyers feel they can just wait for better opportunities, especially regarding BEKP. Along with other sources, he noted that customers are having trouble getting credit and opening up letters of credit (LCs). Given that, and his lack of available pulp to sell in North America, he said he wanted to ask Chinese contacts, “‘Please, can I have some to ship back to North America?’”

One of the BSKP sources (not NBSK), noting that the market is “still relatively tight in North America,” said he wasn’t willing to reduce his price quite yet, as he waited to see if Canadian producers would “hold the line.” As well, he said, it shouldn’t be the pulp producers’ job to get the pulp buyers’ prices up again.” Pulp producers have to cover their costs, too, and “just because (papermakers) can’t afford it doesn’t mean it’s not appropriate” for pulp producers to keep their prices, he said.

A market pulp consultant said Canadian NBSK producers got their price in March, but that they sold only about a quarter of their usual volume. But he (and others) noted that the delivery problems were a factor. He said the producers might also get about a quarter of their business in April, although there will be more tonnage arriving by the end of the month.

So far, he said, there doesn’t appear to have been a lot of progress getting more pulp moving out of Vancouver, because the backed-up conditions caused by the truckers’ strike take time to unravel.

Chinese customers’ softwood pulp stocks are probably adequate for their needs over the next few months as customers take their chances by keeping the pressure on prices and backing off on orders, sources said.

“The biggest thing for me is the currency going the other way. It shocked the people,” said a market pulp consultant. “The government wanted to do a two-way bet to show it could go lower.”

One of the pulp producer sources said it’s hard to know what is behind the currency shift in China, but that it seems that the government wants to create a sense of volatility.

Specifically for the pulp and paper industry, he commented that even as so much new BEKP is on the verge of coming into the market, tissue machine projects in China are being delayed, in no small part because of overcapacity, which is also causing pricing to be less aggressive. Asia Pulp and Paper Co. (APP) will be supplying hardwood pulp to its own tissue mills “and the rest of the pie is not that big,” he added.

The BEKP price in China is continuing to weaken. Whereas a few weeks ago sources said the price of Brazilian BEKP had dropped to $570-$590/tonne (net) from the low $600s/tonne (net), now sources are generally saying $570-$580/tonne (net) or $570/tonne (net) although in recent days a producer source said $580-$590/tonne (net).

Sources said that in the past week or two that a large block of startup BEKP tonnage, of 20,000 tonnes, had been offered into China for $530/tonne. A Chinese buyer said it was “not even produced yet” and that the offer caused “chaos” in the market. A source who is knowledgeable about Arauco, which is the joint partner with Stora Enso in the Montes del Plata mill in Uruguay, said the tonnage was not Arauco’s.

“The commonly held sentiment regarding hardwood is: ‘Is it going to start falling quickly and where is the bottom?’ and ‘What is the position of local Chinese producers and will they follow suit and how much pressure will there be on particular local producers?’” said a pulp sales executive who attended Shanghai Pulp Week.

He and others said there is no real consensus as to what will unfold. Another pulp sales executive noted that if the BEKP price goes too low and continues for a few months, the local Chinese hardwood pulp mills would shut because customers can buy better-quality pulp from overseas. The question during Shanghai Pulp Week was at what point the local mills will “shut down and just buy,” the source said.

For the week ending March 29, FOEX said the NBSK price in China fell $1.58/tonne, to $757.11/tonne, and that the BHKP price dropped $6.79/tonne, to $625.75/tonne.

“The combination of rapidly tightened credit availability and weakening local currency continue to put downside pressure on BHKP prices,” FOEX wrote in its April 1 commentary. “The consequent need to draw down the consumer stocks in order to reduce capital costs and/or for speculative purposes led to a drop in BHKP shipments to China in February after the nice gain seen in January. The multiple pressures have driven the prices further down.”

In its comments about NBSK, FOEX noted that although the Vancouver port strike is over and the winter conditions in North America have eased, “the disturbances seen in Q1 will extend their impact into April and even May.”

Separately, China imported 1,331,397 tonnes of pulp in February 2014, increasing 22.1% from February 2013 but dropping 17.7% from January 2014, which at 1,617,832 tonnes, was one of the highest monthly totals on record, according to China Customs Bureau statistics.

The February 2014 BSKP imports totalled 450,970 tonnes, up 19.0% from a year ago but down 26.3% from January 2014. BHKP imports reached 604,569 tonnes in February 2014, for increases of 27.4% year-over-year and of 0.9% month-over-month.

BCTMP demand. Bleached chemi-thermomechanical pulp (BCTMP) “is in pretty decent shape—softwood is better than hardwood,” said a market pulp consultant, noting that paperboard mills are creating strong demand for softwood BCTMP.

Softwood BCTMP producer sources have been noting as well the good demand in China because of the new paperboard mills.

The consultant said South Korean papermakers also like BCTMP and use a lot of it in coated paper, so in that sense, the BCTMP price perhaps could perhaps stay higher than that of BEKP.

A sales executive for a BCTMP producer said BEKP cannot necessarily replace hardwood BCTMP, which is sought for use in ivory board, although there is probably some substitution in some products. “I’m optimistic. I hope we can hold (the prices),” he said.

He said the March prices in China were $610/tonne (gross) for hardwood BCTMP and net $580-$590/tonne, unchanged from February, while the gross price of softwood BCTMP was $570/tonne, up $10/tonne.

Another BCTMP producer source also said the March softwood BCTMP price rose $10/tonne in China and the rest of Asia, rather than the announced $20/tonne, adding that there is “still good solid demand for hi-bulk BCTMP.”

China duties. China's Ministry of Commerce (MOC) on April 4 announced its final anti-dumping duties decision affecting dissolving pulp producers, including rates of 16.9%-33.5% for U.S. imports, zero to 23.7% for Canadian imports, and 6.8%-11.5% for Brazilian imports except Bahia Specialty Cellulose.

The duties, starting today, April 6, will last five years.

China’s preliminary duties decision, announced in early November, had been from 18.7%-21.7% for certain U.S. companies and 29.2% for others, zero to 13% for certain Canadian companies and 50.9% for others, and 6.8% for Bahia Specialty Cellulose and 49.4% for others.

Noting this, a market pulp consultant said the final decision is a “big break for Jari,” because under the preliminary decision, Brazil’s Jari Celulose, Papel e Embalagens SA would have been subject to a 49.4% duty but its duty is now instead 11%. The Jari mill, which produced BEKP in the past, was shuttered in January 2013 and owner Grupo Orsa has been in the process of converting it to dissolving pulp.

China’s April 4 decision prompted a quick reaction from Fortress Paper Ltd., which said it is consequently evaluating strategic alternatives for the idled Fortress Specialty Cellulose Ltd. (FSC), mill in Lebel-sur-Quévillon, Québec, which produced NBSK in the past and which the company has been considering converting to dissolving pulp.

Fortress Paper said it may also petition the Canadian government to seek a World Trade Organization (WTO) review of China’s overall determination “on the grounds that its domestic dissolving pulp industry, which petitioned the investigation, suffered no injury as a result of imported dissolving pulp from the investigated countries.”

Fortress Paper said in its statement that its management believes that the manner in which China’s Ministry of Commerce determined FSC's dumping margin “was entirely inappropriate and contrary to WTO regulations which govern such investigations.”

In an April 4 research note, RBC Dominion Securities’ Paul Quinn noted that Rayonier Inc.’s duty had been revised downward to 17.2% from 21.7% and that Tembec Inc.’s was unchanged at 13%, while Georgia-Pacific LLC’s Buckeye Technologies Inc. and Weyerhaeuser Co. faced 20.2% and that Cosmo Specialty Fibers Inc. in Cosmopolis, Washington, was levied 18.7%.

“With Rayonier running fluff/papergrade pulp on its C-mill conversion (in Jesup, Georgia), we believe the ruling is not material” for Rayonier,” Quinn wrote. 

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