Pulp market roundup: Producers hope to hold line on prices in global markets, challenged by quietude in China, where demand has slowed as customers push for further price decreases

Diane Keaton

LOS ANGELES , April 27, 2014 (Industry Intelligence Inc.) – Bleached softwood kraft pulp (BSKP) and bleached hardwood kraft pulp (BHKP) producers are trying to keep prices as stable as possible in key markets as they wrap up negotiations for April and plan for May.

In North America, the April BSKP and BHKP prices have remained stable and the spot price ranges for regular purchases are about the same as in March.

In Europe, BSKP supply is fairly snug and the prices are holding up or may increase a bit when business is settled at month’s end, whereas BHKP prices are continuing to falter.

China is where pulp players elsewhere around the world are taking their cues. Demand has been slow in recent weeks and prices of both BSKP and BHKP have declined in April, with customers pressing for further drops. But customers are still buying pulp as needed and prices haven’t collapsed.

Both Celulosa Arauco y Constitución SA (Arauco) in Chile and Canfor Pulp LP in Canada have announced no change in their May softwood pulp prices for China. In its April 25 announcement, Canfor Pulp said it was holding its May prices in all markets.

Arauco’s announcement for May, made on April 16, referred to its April prices in China of US$730/tonne (net) for bleached radiata kraft pulp (BRKP) and $720/tonne (net) for unbleached kraft pulp (UKP).

Canfor Pulp is keeping its northern bleached softwood kraft (NBSK) list price at $1,030/tonne for North America. It is also keeping its announced $940/tonne list price for Europe, made last December. Some European producers in ensuing months had announced list prices of $930/tonne or $940/tonne. By the end of March, producers had achieved a gross NBSK price in Europe of $925/tonne.

For China, various NBSK producers including Canfor Pulp had announced $10/tonne increases for both February and March, but in April, Canadian and European producers generally dropped their China price $20/tonne, as did producers of BRKP. This put the April commodity-grade NBSK list price back to $750/tonne. Industry sources have confirmed that Canfor Pulp’s referenced “unchanged” May price for its reinforcement-grade NBSK is $760/tonne.

As previously reported, sources said Ilim Group in Russia had decreased its NBSK price in China in mid-April by $30/tonne (or in some cases $40/tonne) to $670-$680/tonne (net), depending on order volume. This has not been confirmed with Ilim.

PPPC stats. On April 24, the Pulp and Paper Products Council (PPPC) released the March World 20 chemical market pulp statistics, which showed that producer stocks rose one day over February, to 37 days.

Softwood sulfate pulp stocks decreased one day, to 28 days, and hardwood sulfate pulp stocks rose three days, to 48 days (standard calculation).

March 2014 shipments of 3.791 million tonnes declined 3.4% year-over-year. The shipment-to-capacity rate was 91%, compared to 96% in March 2013. Year-to-date shipments totaled 10.673 million tonnes, down 1.7% from the first quarter of 2013, with decreases in all of the major consuming regions, the PPPC noted. The shipment-to-capacity rate was 89%, down from 92% in the first three months of 2013.

In an April 24 research note RBC Dominion Securities Inc. paper and forest products industry analyst Paul Quinn said the March results are “neutral.”

Quinn said softwood pulp stocks are below balanced levels, which he described as ~30 days, and that hardwood stocks are above balanced levels, which he said are ~39 days. The five-year average for March stocks is 29 days for softwood and 38 days for hardwood, Quinn said.

Metsä mill. The big news regarding capacity last week was the April 23 announcement by Metsä Fibre Oy that it intends to build a 1.3 million tonnes/year NBSK mill at its site in Äänekoski, Finland, to start up in 2017. It said the €1.1B mill will be the world's first next-generation bio-product mill that can convert wood raw material into a diverse range of products.

While there have been various new BEKP pulp mill projects of 1.3 million tonnes/year or larger (up to 1.5 million tonnes/year), Metsä’s planned mill in Äänekoski would be the largest-ever BSKP mill, and one of the only new major BSKP mill projects to come along in recent years. (The other is Ilim’s 720,000 tonnes/year NBSK mill in Bratsk, Russia, which started up last year and involved the closure of an existing 220,000 tonnes/year NBSK mill at the site.)

As posted on Pulp Partners sarl’s PIG mobile app, although most of the new Äänekoski mill’s production will be NBSK, some of the output will be birch pulp. And Metsä Fibre will be taking down its existing 530,000 tonnes/year BSKP/BHKP mill at the site, which will leave a net capacity of 770,000 tonnes/year.

Also Metsä Group has a folding boxboard mill in Äänekoski—the website says its capacity is 240,000 tonnes/year—for which the current pulp mill provides fiber. If the new pulp mill continues to do so, it would result in that much less pulp for the market. “Still, a half million tonnes will be softwood, so it’s a big deal,” said a market pulp consultant.

Commenting on the plan, a major pulp buyer said additional softwood pulp capacity would help keep pressure on pricing. As for pulp availability, he said European buyers would benefit but that he doesn’t think it will have much effect in North America, where his company prefers Canadian NBSK.

Montes del Plata. The startup of the Montes del Plata bleached eucalyptus kraft pulp (BEKP) mill in Punta Pereira, Uruguay, remains contingent on the granting of the necessary permit from Uruguay’s environmental agency Dirección Nacional de Medio Ambiente (DINAMA), Stora Enso Oyj CEO Jouko Karvinen said in comments made in conjunction with the company’s first quarter earnings report released April 23.

Given the delays starting up the 1.3 million tonnes/year mill, Stora Enso said in its earnings report that its 2014 share of production would be approximately 350,000-400,000 tonnes rather than the earlier estimated 500,000 tonnes. The mill is a joint project of Stora Enso and Arauco, so doubling this estimate would amount to production in 2014 of 700,000-800,000 tonnes.

A sales executive for another BEKP producer said that if Montes del Plata starts up in May, it would be a challenge for it to produce 700,000 tonnes in 2014, let alone 800,000 tonnes. If it is ramping up in June, it would be hard-pressed to reach 100,000 tonnes of production during that month, he said.

Carter Holt Harvey. Japan’s Oji Holdings Corp. and Innovation Network Corp of Japan (INCJ), have agreed to acquire New Zealand- and Australia-based Carter Holt Harvey Pulp and Paper Ltd. for NZ$1.04 billion (US$861.2 million), with Oji owning 60%, Bloomberg News reported April 25. INCJ said in a statement that the acquisition “enables a stable supply of rare softwoods because of the abundance of conifer trees in New Zealand.” The acquisition is set to close during the year ending March 31, 2015.

Separately, RBC’s Paul Quinn said in an April 24 research note that Oji’s BEKP pulp project in Nanton city, Jiangsu, China, received approval from the Chinese government this month to operate, but only at 470,000 tonnes/year, rather than the design capacity of 700,000 tonnes/year. He said the startup date is uncertain.

In his April 2014 Market Pulp Monthly, industry consultant Brian McClay shows the second quarter of 2014 as the effective startup date of the Oji mill, described as a partly integrated 700,000 tonnes/year BEKP line and as having a market pulp capacity of 440,000 tonnes/year. McClay noted that the startup has been postponed due to the delayed construction of a municipal wastewater pipeline.

North America angle. In first quarter earnings reports released last week, some North American pulp and paper companies said the severe winter had caused notable financial strains.

As reported in recent weeks, sources have provided a variety of comments, from their own perspectives, about the degree of improvement or lack thereof.

Last week some North American pulp buyers said pulp deliveries to their mills have improved. “We’re starting to see the railroads clear up their backlogs,” said a buyer, adding that railcars have been arriving “at a pretty good clip” for the last week or two. “Generally we’ve seen some cars arrive ahead of forecast. It’s pretty much back to normal,” he said.

Another buyer made similar remarks and said his pulp suppliers reported that railcars have been showing up in Canada and the U.S. in the past week. Apparently this isn’t the case across the board, though, as suppliers in recent weeks continued to bemoan ongoing backlogs they said would take weeks to unravel.

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.

The March/April BHKP list prices are $870-$880/tonne for NBHK and southern bleached hardwood kraft (SBHK), depending on the producer; these prices were flat to up $10/tonne in March.

The gross price of BEKP has been $870/tonne for several months, although sources noted a recent published report showing the April gross price is down to $860/tonne. Not all sources agree that there has been a $10/tonne drop. “Nobody has done that,” said a sales executive for a major BEKP producer.

A pulp buyer said all suppliers with whom he has been speaking “are pretty quiet” about market conditions. “They are all facing the reality the prices need to drop, but seem to be doing so slowly.”

Another buyer said that while he isn’t seeing any pressure on April list prices, he did receive a $20/tonne reduction on a small quantity of spot NBSK, to $720/tonne. In recent weeks, sources have been quoting a wide range of spot prices, from the low to high $700s/tonne. (One of the buyers commented in recent days that the spot prices are discounted so highly off the list prices that there needs to be “some sizeable move on softwood” list prices.)

As for NBHK, sources have reported a wide range, as well, from the low to the high $600s/tonne.

These days the price ranges for both softwood and hardwood pulp often have to do with freight costs, pulp players have been saying.

One of the sources mentioned some noteworthy NBHK downtime. He said Alberta-Pacific Forest Industries Inc. (Al-Pac), in Boyle, Alberta, has delayed its spring maintenance to this fall in order to catch up following the severe winter. And Sappi Fine Paper North America’s Somerset mill in Skowhegan, Maine, will be down for a month in October for the final tie-in of a natural gas pipeline.

One of the buyers said he expects hardwood pulp pricing to “continue to slowly erode” but that he doesn’t expect announcements of list price reductions, commenting that they are “rare to do.”

Noting that the price of NBHK is at or a bit above that of eucalyptus pulp, he said North American hardwood pulp producers currently “are putting themselves at a tremendous disadvantage” and should consider reducing their prices from their “fairly high” levels. They “could easily drop $20-$30 and stay below eucalyptus, at least informally. They would not want to stand by and lose market share,” he said. “I don’t think hardwood producers in North America are going to easily let North American business get taken away.”

He said he expects a lot of talk about this during International Pulp Week in Chicago in early May. The current price situation vis-à-vis eucalyptus pulp “is a big development for the few North American (hardwood pulp) producers that are left,” he said. “People hate to announce price drops, but in this case it might be a strategic decision to let customer know.”

Another buyer said he is receiving a number of spot softwood and hardwood pulp offers and that deliveries have improved in the past week. But also he said he is still awaiting the arrival of railcars he ordered in February. He said the offers are coming for NBSK, SBSK, NBHK, and BEKP, but not SBHK, and in 1,000 tonne blocks for the North American-produced tonnage. Until this past week he said he had been offered “zero” spot tonnes and had been “sweating bullets” to get enough pulp to make paper, along with paying dear prices.

“The change is there’s more available,” he said. As for what producers are doing regarding prices, he said, “I think they’re afraid to do a lot before Pulp Week.” For now, he said, he is limiting how much pulp he buys because he is keeping a close eye on costs and expects spot pricing to drop in May. “Even if it’s $10 down, I will be happy,” he said.

He and some other buyers in the last couple of weeks have reported spot BEKP offers. Some of the buyers said the discounts were as much as 30% off of the gross price. One claimed a large block being offered.

But a sales executive for a major Brazilian BEKP producer selling into North America said he is hearing no such talk and added that his company has no excess tonnage to put into the pulp market. He named some other major Brazilian BEKP suppliers, saying one doesn’t have excess tonnage and does not appear to be diverting tonnage from China to North America, and another that “has no pulp,” so its agent and customers have been reaching out to him instead.

(He commented that it is difficult to divert tonnes form Asia to North America because the voyage from Brazil to Asia takes 50 to 60 days. He said producers need to be prepared in Asia, given that the market can turn quickly and the price can head right back up.)

As for concerns about BEKP grabbing market share from domestic producers, he said it’s not that BEKP producers are holding the price down, but rather that NBHK isn’t available. Although some buyers are trying to talk the market down, he said NBHK buyers are concerned about future availability because of the potential of closures. “Northern hardwood prices are at their highest in 10 years and they can’t make any money,” he said.

For that matter, he said, cost structures plus debt are now such that BEKP producers “don’t make pulp for nothing.” He said, “Anybody who thinks really cheap pulp comes from Latin America is not up to date. If eucalyptus (producers) could raise the price they would raise the price.”

He commented that the gap between the NBSK and BEKP prices in North America—the current respective prices are $1,030/tonne and $870/tonne—“is a problem.”

Some concerned buyers are asking to run BEKP trials, he said, describing BEKP demand from North America as higher than it ever has been, “not just tissue but because of the availability of (domestic) hardwood or concerns about the future viability of hardwood.”

He added, “I don’t see things as bad as other people are trying to make them appear. The one market that hammers us when the market is bad is Mexico and I’m not seeing that.”

Mexican papermakers that have the capability to use more eucalyptus have been doing so because of the lack of SBHK, he said, describing this as a natural transition that is taking place over time.

For the week ending April 19, FOEX Indexes Ltd. said the NBSK price in the U.S. rose 44 cents/tonne, reaching the list price of $1,030/tonne.

In its April 22 remarks, FOEX said North American suppliers and buyers are still reporting some problems with the timing and availability of railcars. “This keeps the pulp market tight,” FOEX wrote.

FOEX said there is still some risk that dissolving pulp mills will convert back into paper grades or fluff pulp, given the current prices minus the duties when compared with production costs. “Swings from fluff to paper pulp appear unlikely at present as the fluff pulp market appears, at least for now, tighter than the regular paper pulp market and further 20-30 dollar price increase initiatives have been announced by several producers over and above the price increase seen already in March, “FOEX wrote.

FOEX noted that for the time being, the prices of paper pulp and fluff pulp are virtually the same, rather than the normal $30-$50/tonne premium commanded by fluff pulp over paper-grade SBSK.

Last week a market pulp consultant said fluff pulp is still tight and moving up, and that it may be absorbing more paper pulp, perhaps temporarily. He said that as of about three weeks ago, he began hearing about more SBSK availability, given the weather and fluff pulp dynamics and the fact that China’s dissolving pulp duties have affected decisions about what kind of pulp to produce in some mills.

Paper side. A North American papermaker source said order books for coated paper are picking up seasonally and he named a company that he said is running full.

As for the financial of various paper sectors in North America, the market pulp consultant said specialty papers are OK, tissue is “not in great shape, and LWC (lightweight coated) paper “is losing money.” Because of the pending possible merger of Verso Paper Corp. and NewPage Corp., “no one” wants to close capacity, he added.

In an April 24 research note, RBC’s Paul Quinn said weaker-than-expected global economic performance would slow the growth in demand and pricing for communication papers, including uncoated freesheet (UFS). “The extent to which UFS demand recovers with an improving economy partially depends on the degree to which end-uses are displace by electronic media,” he wrote. “A stronger-than-anticipated Canadian dollar would negatively impact operating margins.”

Europe deciding. Various industry players expect the April NBSK gross price to rise a bit more in Europe, say, $5/tonne, or perhaps remain at $925/tonne.

The market pulp consultant said the NBSK price might stay flat because of the growing gap with BEKP prices. “People are leery about the spread being really wide if eucalyptus goes to $750, unless the euro gets stronger,” he said, adding that April pricing will depend on where the euro is this week as buyers and sellers conclude their end-of-month negotiations. (Currently the euro is at US$1.38339.)

It’s also difficult for sellers to be pushing a $5/tonne BSKP increase on their customers that they know are already losing money, he commented.

Some producers said that BSKP supply conditions are solid in Europe at least in part because of some production issues in the region, the latest being the March 23 recovery boiler explosion at the Zellstoff Pöls mill in Austria, which caused the temporary stoppage of the mill’s NBSK pulp production for the market.

A sales executive for a major NBSK supplier in Europe said his company has extra demand in Europe and that its inventory level is still going down. “At least April and May will be rather tight for us,” he said.

“The softwood market in Europe is pretty tight,” said another such source. Naming a European competitor that sells into China, he said, “I would rather expect them to reduce their Chinese shipments somewhat if volume is required in Europe.” He said he has not heard about producers pulling volume back from the U.S. in order to serve Europe.

Sources expect April BEKP prices in Europe to drop $10/tonne, or perhaps as much as $15/tonne. They mostly said the March gross BEKP price in Northern Europe fell $5-$10/tonne, to $760/tonne, although there also were quotes of $760-$770/tonne. For Italy, the March quotes were mostly $750/tonne or a bit higher or lower, down $5/tonne or in some cases more.

A sales executive for a BEKP producer noted that selling BEKP in Europe is a struggle because paper consumption is down.

On April 25, the European Association of Graphic Paper Producers (Euro-Graph) released its statistics for February 2014, which continue to show year-over-year shipments declines. In February they totaled 2.905 million tonnes, decreasing 2.8% from those of February 2013.

In February 2014, as in January 2014, only uncoated woodfree (UWF) paper showed positive results. Euro-Graph said February 2014 shipments of UWF increased 1.8% year-over-year, to 603,000 tonnes, following the year-over-year gain in January 2014 of 1.4% and in December of 4.3%.

(Euro-Graph is no longer releasing its monthly statistics in the following month but is instead waiting two months. Thus, the February statistics were released April 25 instead of March 25.)

For the week ending April 19, FOEX said the NBSK price in Europe inched up 20 cents/tonne, to $924.25/tonne, while in euros it moved higher by 96 cents/tonne, to €667.09/tonne, as the euro weakened against the U.S. dollar by 0.1%.

FOEX said the BHKP price slipped 6 cents/tonne, to $758.59/tonne, but it euros it rose 63 cents/tonne, to €547.52/tonne.

In its April 22 commentary, FOEX said maintenance downtime, production losses, for example, at Pöls, and the logistics problems that persist in North America “are helping to keep the softwood pulp market balance tight.”

FOEX noted that in the hardwood market pulp, the supply/demand balance is not as good as it is in softwood, “in spite of the historically quite large – but not record – price differential supporting market BHKP demand.” FOEX said this support on demand shows, for example, in a nearly 2% consumption growth between March 2014 vs. March 2013 and in the 24,000 tonne decrease in BHKP consumer stocks in Europe.

“The delays in the entry of new supply are also supporting the market physically but the mental pressures of the approaching volume increases remain,” FOEX wrote. “All the same, ENCE has publicly announced a 15 USD/ton price increase for market BHKP in Europe from April 1.”

China pressures. Sources continue to say that Chinese customers are keeping purchases to a minimum in hopes of further pushing down prices.

For the week ending April 19, FOEX said the NBSK price in China dropped $1.74/tonne, to $751.04/tonne, and that the BHKP price fell $5.13/tonne, to $619.96/tonne. And FOEX noted in its April 22 commentary that the purchasing activity of both softwood and hardwood pulps is subdued.

“China’s not interested in buying. People don’t want to open LCs (letters of credit),” said a market pulp consultant. He said this is likely to be the scenario for several more months, but that by August, he expects Chinese customers to be eager to buy.

Meanwhile, a sales executive for a major Canadian NBSK producer said that because of this year’s shipping delays, the LCs have to be open for longer than the usual 60 days in order to prevent their expiration. He said the terms are being extended to, say, 90, or even 120, days and that this tactic is widespread in Canada at the moment.

He said one reason for Canadian NBSK producers to drop their price $20/tonne in April was to hold LCs open longer, noting that his company has needed to keep its working capital higher. He described shipping volumes as “regular” and “good,” although he said there is a lack of shipping capacity, and he said it is necessary “to chew into the inventory that has built up.”

As for Arauco and Canfor Pulp announcing unchanged May prices for BSKP while Ilim has supposedly recently dropped its prices again, sources compared and contrasted the companies. As stated in the April 22 report about Arauco’s May pricing, a source with a major BSKP supplier to China said Ilim still has quality problems on its new NBSK line in Bratsk “and what we have heard for some time already is that only about 50% is prime grade, so they need to be more aggressive or increase the price gap.” (This has not been confirmed with Ilim.)

In recent days a market pulp consultant added that Ilim “sells for cash every month” and is considered to be an outlier in the industry. “The relationship is not linear,” he said.

Others have noted over the years that Ilim doesn’t have warehouses and therefore keeps its production flowing to customers, which, when the market drops, can require more severe price reductions to make sales than other suppliers are willing to stomach.

As previously reported, the hardwood pulp side has already shown weakening prices in China for a few months, with mid-April net prices already said to be down to $540/tonne for Ilim’s BHKP and Indonesian acacia and Indonesian mixed at $530/tonne. Also in mid-April there was a report that Latin American BEKP was being offered into China in a net price range of $540-$550/tonne.

“China backs off every year: If not every 12 months, it’s 18 months,” a sales executive for a BEKP producer commented. “It’s always ‘a structural problem’ about this and that. China always backs off to drop the price.”

Separately, Bloomberg News reported April 22 that China is likely to let some banks fail. “Chinese Premier Li Keqiang’s plan to introduce deposit insurance is meant to comfort the nation’s savers as bad loans mount,” it reported. “In the bond market, it’s fueling speculation he’s preparing to let some banks collapse.” 

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