Pulp market roundup: China slowdown dominates global market tone as Ilim said to have dropped prices again; pricing remains stable in North America, where delivery problems continue, and in Europe pricing is steady in softwood, declining in hardwood

Diane Keaton

LOS ANGELES , April 20, 2014 (Industry Intelligence Inc.) – Global pulp dynamics are being affected by the China market, where activity has slowed as customers try to push bleached softwood kraft pulp (BSKP) and bleached hardwood kraft pulp (BHKP) prices down further.

In Europe, BSKP prices are holding and may move up marginally in April, while BHKP prices are expected to fall a bit more.

The market in North America, where demand is steady and delivery problems continue, continues to see stable pricing for both BSKP and BHKP.

Last week Russia’s Ilim Group was said to have decreased its northern bleached softwood kraft (NBSK) pulp price in China by US$30/tonne, to $670-$680/tonne CFR (net), based on order size, and its northern bleached hardwood kraft (NBHK) price is already down to $540/tonne (net), according to a reliable source, who said the information was received late Thursday.

This has not been confirmed with Ilim and it was not immediately clear if the latest NBSK price was effective immediately or instead for May, but the source said it is likely the former because “there were not a lot of orders in March or April.”

Other sources last week also reported been hearing talk of a price decrease by Ilim, without confirmation.

The news of Ilim’s $30/tonne drop on NBSK “will be depressing in the market,” said a market pulp consultant. He said the price of BSKP in North America, which has been stable to rising in recent months, could drop by the end of May. Even if the pulp were invoiced in the first two weeks of the month, the deals in North America could include the possibility of revising the price downward to accommodate a change in the market, he commented.

Several sources have also reported that BHKP prices in China are continuing to fall this month.

Some producer and agent sources have been saying they don’t see a collapse in softwood pulp pricing in China. “There just isn’t that excess capacity to ship over there,” said a North American agent selling into the region. “I believe the Chinese are just looking for a lower starting point.” He added that Chinese customers don’t seem to believe that pulp arrivals will be a couple of months behind. “The strength in North America helps prop it up, too,” he said.

Sources said the fluff pulp market remains strong. The agent said that in the Middle East and North Africa it reached $780/tonne in March and is “maybe $790 now,” as discussions continue, adding that pricing in the region tends to be murky and on a case-by-case basis.

North America market. In North America, the issue isn’t prices, but rather delivery, sources continue to say. There was no dearth of comments from sellers in the past week about logistical issues in North America, although some buyers indicated deliveries have become a little more reliable than before.

Sources selling Canadian pulp sounded little different last week from others contacted in recent weeks regarding logistical issues, all lamenting the erratic availability of railcars and the jacked-up costs of trucking they were—and some still are—forced to turn to in the alternative.

The current list prices in North America are $1,030/tonne for NBSK and $990/tonne for southern bleached softwood kraft (SBSK), both up $20/tonne in March. For the week ending April 12, FOEX Indexes Ltd. said the NBSK price in North America moved up $3.24/tonne, to $1,029.56/tonne, or just 46 cents/tonne shy of the list price announce for March.

Depending on the producer, the March/April BHKP list prices are $870-$880/tonne for NBHK and southern bleached hardwood kraft (SBHK), which were flat to up $10/tonne in March. The bleached eucalyptus kraft pulp (BEKP) price has been $870/tonne for several months.

Sources said Canada’s mandate for railroad companies to prioritize the delivery of grain, reportedly requiring about 11,000 railcars a week, isn’t helping matters any. Though the railcars used for grain are not the same as those used for pulp, sources said the issue is a lack of enough power to pull railcars throughout the system, which carry various commodities. And they said that for sustained periods during the recent bitter winter, it was sometimes too cold to get the trains going even when extra locomotives were added.

A sales executive for a Canadian pulp producer reported getting more railcars in recently, “but I don’t know if it will stop,” he said. He said he had just a received “a decent quantity” for three or four days after the arrival of only seven cars during a four-day period. Meanwhile, the amount of time it takes for the railcars to arrive at their destinations is more than doubling in some cases, for example, from nine to 20 days or 14 days to 32 days, he said. He cited a case in which a customer on 30-day terms had not paid the invoice because, it turned out, he hadn’t even received the pulp yet.

Noting that his spring maintenance outage is coming up, he said pulp is still stuck at the mill and that he has had to continue turning down spot business. He said it was necessary to retrieve pulp from a warehouse to serve a major customer. “We had to do some trucking from the warehouse because we got behind,” he said. “We’ve emptied out the warehouse. There’s not much out there.”

Given the supply and delivery issues, he scoffed at a forecast showing that both BSKP and BHKP would drop $80/tonne. “Right now the Chinese are playing the game again and (Ilim) blinked. Demand’s too good in North America,” he said, adding that at some time the Chinese customers “will buy, buy, buy, and have to scramble.” He said China’s current price pressures aren’t at all affecting the BSKP market in North America, but that they might be having “a little” effect on BHKP.
Another sales executive for a Canadian supplier said in recent days that he is “60 cars behind” on shipping. “We need 70 a week, we need 100 to get caught up, we’re getting 50,” and the railway company said nothing will change until the middle of May, he said.

He cited a just-received letter from a railway company describing “significant yard congestion” and an inability to meet sustained demand because the cycle times are longer. “They don’t blame it on the real problem, which is money,” he said. “There is no surplus of cars to increase to 100 cars a week,” he said, adding, “I’ve never seen anything like it. The rail problems are usually short-lived.”

Because of the ongoing ordeal, he said his company is continuing to truck pulp to a number of customers—the trucking cost he named is more than 150% above what he said he pays to ship by rail—and that it is exploring other options to assure that in the future, the pulp gets delivered to customers as needed.

“This basically affects everything we do,” he said, commenting that his company’s mill operations are OK. “It’s just a matter of shipping it. It’s all we talk about.”

Discounting some forecasts, he said he doesn’t expect pulp to flood the market down the line and cause fire sales. Naming some large-scale customers that aren’t getting pulp as quickly as normal, he said, “They don’t have pulp if they are asking for trucks.”

A smaller-scale New England buyer reported improved rail deliveries from an Eastern U.S. port and renewed rail service by a Canadian pulp mill to a warehouse used by the buyer. But other buyers are still dealing with logistical problems.

A mid-sized buyer said his company’s mills are getting pulp but there are still close calls and no guarantee of receiving it quickly. “April is starting to get back to normal but it’s a long slog,” he said. Pulp producers are telling him that as for having normal deliveries and inventories, they “won’t dig out until mid-July and one said August,” he said. All players are eager for the delivery issues to end in order “to get to the true market situation,” he added.

A North America-based sales agent also reported ongoing delivery issues. “We are turning away business in North America,” he said, citing shipping problems among Western Canadian pulp producers. Given the weather-related snags this year, he described some papermakers as still hand-to-mouth, with regular spot customers looking for more tonnage and not being able to get as much as usual.

But in contrast, another mid-sized buyer said, “Something’s changed in NBSK last week. I’ve had more NBSK spot offers in the last two days than in the last two months.” And he said most of the tonnage is coming from Western Canada. As have others in recent weeks, he noted that the weather-related high spot prices, which ranged into the $800s/tonne, are no longer being quoted; he said spot prices are in the mid-$700s/tonne, which he described as lower than his net prices off of contracts. (Others have said mid-to-high $700s/tonne or in some cases a bit under the mid-$700s/tonne range.)

One of the other buyers said he is seeing some signs of change in the market, perhaps because of the pressure in China. He described spot NBSK prices of $745-$750-$760/tonne—he noted $745/tonne is 28% off of the list price—and said the current prices compare to earlier spot prices in the high $700s-low $800s/tonne.

(As previously reported, contractual discounts crept up this year in North America by another percent or two, on the average and are typically at least in the low- to mid-20th percentile. A supplier said in recent days that regular contractual discounts in the U.S. Midwest are as much as 30%.)

One of the buyers also said spot SBSK could be had for under $700/tonne for a short delivery distance and another said he is sensing that SBSK tonnage is available and that he wants to try some as replacement tonnage for NBSK for cost reasons.

Some supplier and buyer sources in recent days have said the spot price range of NBHK is around $605-$630/tonne. A buyer commented that these spot prices are comparable to his net prices off of contract. As previously reported, there have also been April price quotes in the mid- to high-$600s/tonne. Sources often point out that freight distance is a key factor in the price.

Sources also note that less NBHK is being produced by some Western Canadian mills that have swung to more NBSK production to take advantage of the NBSK prices. One effect, as well, is that these mills are selling less NBHK to China. Meanwhile, Fortress Paper Ltd. restarted its Thurso, Québec, mill on March 4 after 10 weeks of market downtime and is producing maple-grade NBHK rather than dissolving pulp.

A buyer quoting a spot NBHK price of about $610/tonne nevertheless said he hasn’t been hearing about much excess tonnage. Prior to April, he was getting offers with pricing 4%-5% better than his net price off of contracts, but this has not been the case in April, he said, noting that maintenance outage schedules might be a factor. But he said there is more SBHK availability than a few months ago, when there were production-related issues, and that spot tonnage can be had for $600/tonne for short-distance delivery.

There doesn’t appear to be a lot of spot BEKP in the North American market—some producers say it is minimal or nonexistent—but some mid-sized BEKP buyers said they get offers, and that the price is around 30% lower than the current $870/tonne list price. “My impression is that a lot of current suppliers have pulp available and don’t have contracts,” said one of the buyers.

Another said that during International Pulp Week, which will be in Chicago in early May, he is looking forward to learning what kinds of opportunities there are for spot BEKP business. Even though tonnage from Suzano Papel e Celulose SA’s tonnage from its new BEKP mill in Maranhão, Brazil, is not yet a factor in the marketplace and the Montes del Plata mill in Uruguay hasn’t started up yet, “I don’t think there’s any doubt about the psychological impact it has taken hold of out there,” the buyer said. He added that the question remains as to how it will affect the softwood pulp market.

On the other hand, an NBSK supplier source said he doesn’t expect the relatively higher NBSK prices to result in substitution with BEKP, commenting that the major North American BEKP users have already substituted to the fullest extent possible. “They’re not stupid—they don’t wait till the price goes down,” he commented.

In its April 15 commentary, FOEX noted the ongoing impact in the North American pulp market of the logistics problems created during the winter months.

“So, in spite of the drop in the BSKP shipments to the North American market, the supply/demand balance remains tight. Also in fluff pulp, the balance is good after the Q1 production losses and prices are inching upwards reducing the pressure to want to run paper pulp instead of fluff,” FOEX wrote.

FOEX said China’s confirmation of dissolving pulp import duties will reduce the conversion rate from paper pulps to dissolving pulp and that it will increase the risk that producers will run paper pulp along with their present dissolving pulp capacity, because the price gap between standard dissolving pulp and softwood kraft “is historically narrow.”

Europe conditions. A sales executive for a producer in Europe said he expects the April NBSK price to be flat or up about $5/tonne, to $930/tonne.

Although the $930/tonne and $940/tonne NBSK list prices for Europe announced by some producers in recent months have not yet taken effect, the prices have been creeping up month-by-month, reaching $925/tonne in March.

Some market sources noted the effect on the market of the March 23 recovery boiler explosion of Heinzel Group’s Zellstoff Pöls AG NBSK mill in Pöls, Austria, which resulted in a force majeure. The mill is using a reserve boiler to supply fiber to the mill’s paper machine but the explosion has prevented it from making enough pulp for the market, sources said. Heinzel said on April 10 that the company is “working intensively to replace the damaged boiler.”

Industry sources said the Pöls mill sells to such markets as Northern Italy, Eastern Europe, Central Europe, and Turkey. “Pöls is an issue” with supply now “out of balance,” the aforementioned sales executive said. He said the explosion interrupted production of about 10,000 tonnes/month for the market. A market pulp consultant estimates several thousand tonnes/month more than that, adding that the reduced production has to “be helping at the margin.”

The consultant said he expects the NBSK price in Europe to rise $5/tonne in April but for the BHKP price to drop at least $10/tonne.

The sales executive said the BHKP price in April in Europe will likely decrease $5-$10/tonne, depending on the supplier, as well as on the March supplier inventory statistics, which are set to be released April 23. “I know the Italians are waiting—they are hungry to get it much more down,” he said.

He described the March BHKP price in Northern Europe as $760-$770/tonne (others have said $760/tonne) and in Italy as $750-$760/tonne (others have said $750/tonne in Italy and in some cases $745/tonne or lower).

He said the paper side has been a “bit disappointing” and he said that in recent times, the typical seasonal pickups have been happening a month or two later than usual.

For the week ending April 12, FOEX said the NBSK price in Europe increased 43 cents/tonne, to $924.08/tonne. In euros, the price sank €8.05/tonne, to €666.13/tonne, as the euro strengthened against the U.S. dollar by 1.3%.

FOEX said the BHKP price increased 34 cents/tonne, to $758.65/tonne, and dropped in euros €6.62/tonne, to €546.89/tonne.

(The euro is currently at US$1.38150.)

In its April 15 commentary, FOEX wrote that known BSKP production capacity increases this year will amount to only 0.5% or so. “This is without further, likely, closures of paper capacity releasing market pulp from earlier integrated use and also without possible swings from other grades (BHKP or dissolving pulp) into softwood pulp,” FOEX wrote, adding that recent practical supply has been sinking rather than growing, given the production problems seen both in North America and in Europe.

“Demand has been relatively soft but with frequent difficulties to produce and/or deliver the pulp, the market has remained fairly tight,” FOEX wrote.

Given the weakness of the U.S. dollar against the euro, the price has risen just US$16/tonne since the turn of the year, while the price in euros is fractionally down, FOEX noted.
In its BHKP comments, FOEX noted that capacity will grow this year by about 2 million tonnes from Latin America alone and some more from the Asian sources. “While some conversions away from BHKP can be expected, the risk of an over-capacity is quite obvious, especially as the demand has not grown in the beginning of the year against early 2013,” wrote FOEX wrote, adding that some production was lost in North America during the first quarter.

“Still, the approaching start-ups of capacity menace the pricing. On the other hand, the bigger the gap between BSKP and BHKP prices, the more certain it is that the demand for the latter will pick up as the year progresses,” FOEX wrote.

Separately, Utipulp said on April 17 that European consumers’ inventories of woodpulp declined 40,215 tonnes, or 6.3%, in March over February, to 597,487 tonne. The stocks declined 6.1% compared to March 2013’s 636,383 tonnes. This was the first time since September 2013’s record 585,137 tonnes that monthly stocks have fallen below 600,000 tonnes. In March 2014, consumers had 19 days of stocks, down from 20 days in February. The consumption of woodpulp in Europe in March 2014 fell 7,577 tonnes, or 0.8% compared to March 2013, to 1,002,395 tonnes.

Also on April 17, Europulp said European woodpulp port stocks increased an estimated 13,879 tonnes in March over February, or 1.3%, to 1,059,316 tonnes. The March 2014 stocks increased an estimated 87,419 tonnes, or 9.0%, compared to those of March 2013. The Europulp stocks have been moving up since the most recent low, in November 2013, of 1,018,849 tonnes.

China mood. Most sources said Chinese customers are trying to push down prices as much as possible and that they have enough inventory on hand to hold out for a while.

Sources said Canadian NBSK suppliers are generally going along with a $20/tonne price reduction, but that this has not induced Chinese customers to purchase their full April allocations of Canadian NBSK because they think there will be another decrease in May. (With a $20/tonne reduction, the Canadian NBSK list prices are $750/tonne for commodity grade and $760/tonne for reinforcement grade.)

A sales executive for a European NBSK supplier to China said his tonnage sold for $760-$770/tonne in March and that he is expecting it to be $750-$760/tonne in April, adding his company hasn’t closed business yet. “I believe with $750 we will get the full volumes,” he said, adding that he doesn’t see why the price in China should drop quickly. He expects the bottom to be around $700-$710/tonne.

Hearing these numbers, a market pulp consultant said, “I don’t believe that’s the case. It’s wishful thinking.” He expects the list price to fall into the mid-$600s/tonne going into the third quarter, with a 2%-3% discount off of the list. “If it could stop at $700-$710, it would be a victory,” he added.

Referring to NBSK sales in China in April, a sales executive for a Western Canadian producer said 50% has been concluded and he described his company’s March volumes as 30%-40%. (As previously reported, some said the overall percentage for Canadian NBSK in March was about 25%.)

The sales executive said May could see another $10-$20/tonne decrease, bottoming in June at $710/tonne (net) for coastal NBSK and $730/tonne (net) for interior NBSK, at least for smaller-scale customers regarding the latter price.

But he said he is not all that concerned about the current reduced demand because supply will be tightened by spring maintenance shuts and that it is already tighter because of the reduced output from Austria’s Zellstoff Pöls mill, and because his company has “many options other than China,” including “huge” demand in North America, including inquiries from the eastern part, and other markets in Asia, such as Korea, Japan, and Taiwan.

(A source familiar with Metsä Fibre Oy, a regular supplier to North America, said there might have been weather-related shipment delays from the company’s mill in Kemi, Finland, which supplies the U.S. market.)

The Canadian source said his customers have been able to open letters of credit (LC) in a timely manner although they are hesitant to do so as they wait for prices to drop. But meanwhile, his company continues to experience shipping delays, with business that is concluded in April expected to take three months to arrive in China instead of the usual 30-45 days, he said.

He said even though there is a gap of $150-$160/tonne between the prices in China of BEKP and NBSK, so far he has not seen any direct effect on the price, describing the gap as “still in the acceptable range.”

He and others have said that some small local BHKP mills in China have begun closing; he said it was when the local price fell to $520-$530/tonne. He said current prices of Indonesian pulp are $530/tonne for mixed hardwood and $540/tonne for acacia.

As reported April 18, a reliable source said Ilim is already at $540/tonne for BHKP.

A market pulp consultant said that on a case-by-case basis, Latin American BEKP is being offered into China in a net price range of $540-$560/tonne. And he said the price is expected to keep going down. Even if it were drop to, say, $500/tonne, he said, it wouldn’t necessarily mean that certain new mills would shut because they also sell energy and would have to keep doing so for a while to avoid a penalty. “So I’m not so sure they would be so quick to stop (making) pulp,” he said, adding, “I think it makes it more volatile, another barrier to downtime.”

A sales executive for a European pulp supplier said BEKP pricing in China was in the $570-$580-$590/tonne (net) range and that he expects the dropped pricing to stop at $550/tonne (net), rather than the $520-$530/tonne some are predicting. He said there is no point in dropping the price by so much not, since the big volumes are still on their way.

For the week ending April 12, FOEX said the NBSK price in China slipped $1.66/tonne, to $752.78/tonne, but that the NBHK price moved up $1.49/tonne, to $625.09/tonne.

“With the price gap between softwood and hardwood up considerably since the turn of the year – 130 dollars now and 90 in the beginning of the year – the pressures to make furnish changes in favour of hardwood is strong. In spot pricing, the gap is even larger than in the contract business,” FOEX wrote in its April 15 commentary.

Noting that BHKP pricing in China is a challenge, FOEX wrote that in “China, the over-supply of the paper sector makes paper markets and paper pricing very competitive and impacts pulp pricing this way as well.”

FOEX said that because a fair amount of Chinese purchases are still on a spot basis, the new pulp production capacity is easily directed toward China, “which has provided additional downward pressure on hardwood pulp prices in early 2014.”

Separately, on April 16, The Wall Street Journal wrote that China’s economic growth slowed to its weakest pace in 18 months, “putting pressure on China’s leaders to allow the yuan to fall as way to help troubled exporters and boost growth, and setting up a potential fight with the U.S. on trade and currency policy.”

It said China’s 7.4% year-on-year growth for 2014’s first quarter was below the 7.7% level seen in the fourth quarter of 2013, and slightly below the target of “about 7.5%” set by China’s leadership for all of 2014.

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