Pulp market roundup: May prices expected to hold or fall modestly around world as pulp buyers mount challenges, noting Chinese customers' success in bringing their softwood and hardwood paper pulp prices down; fluff pulp prices still on upswing

Diane Keaton

CHICAGO , May 4, 2014 (Industry Intelligence Inc.) – Paper-pulp prices in May are being challenged around the world as customers take their cues from the success had by Chinese buyers after pressuring for lower prices.

Various North American buyers attending International Pulp Week in Chicago this week said they would be putting on the pressure for lower prices and favorable deals.

Noting that the U.S. is “really the strongest for softwood and hardwood prices, a pulp sales agent said, “I think that’s about to change.” In Chicago, people will be hearing a lot of comments and will try to make spot orders accordingly, he said.

On April 28, Chile’s Celulosa Arauco y Constitución SA (Arauco) reduced its May price for China of bleached radiata kraft pulp (BRKP) by US$30/tonne, to $700/tonne (net), and its unbleached kraft pulp (UKP) price by $10/tonne, to $710/tonne (net).

An Arauco official said a few days ago that the company has accepted normal BRKP allocations for May at the reduced price but that not all business was finished.

This is the second straight month in which Arauco has announced unchanged pricing for BRKP, but has then subsequently reduced the price. Its UKP price was unchanged in April.

A knowledgeable source said Arauco dropped the May BRKP price “based on the Ilim price level and the uncertainty it created among customers.”

As previously reported, Russia’s Ilim Group in mid-April dropped its northern bleached softwood kraft (NBSK) price to about $670-$680/tonne, down $30-$40/tonne, with the lower price being for higher-volume deals. A few days ago a pulp sales agent source reported hearing that Ilim’s range is $660-$680/tonne.

Given the Arauco move, sources expect Canadian and European northern bleached softwood kraft (NBSK) producers to reduce their May prices in China, as well, if they need to move tonnes.

Given the current market dynamics, a sales executive for one such producer said the May net price will probably be $700/tonne. He and other sources said they were surprised that Ilim has dropped its prices so quickly in recent months, commenting that the softwood pulp market is fundamentally in good shape.

Sources name a major BSKP producer (not NBSK) that they said is offering a $690/tonne deal in China, down $20/tonne in May and $20/tonne in June, for customers willing to confirm volumes for both May and June. Commenting on this, a market pulp consultant, said, “I believe most customers would not want to confirm big volumes.”

Fluff strong. In contrast to paper pulps, fluff pulp is in strong shape and there is another round of price hikes slated for May. Depending on the producer, Weyerhaeuser Co., Domtar Corp., International Paper Co. (IP), and Resolute Forest Products Inc. have announced global $20-$30/tonne price hikes for May, following similar moves for April. This would bring April/May prices up $50-$60/tonne, depending on the producer.

For April, IP had announced a $55/tonne increase for the Middle East, North Africa, and Turkey, and in recent days a buyer in the Middle East said the fluff pulp market in the region jumped $60/tonne in April; he said the range of prices was $780-$800/tonne.

A pulp sales agent in the region said, “There is a lack of fluff and no one is accepting any new orders before end June/beginning July production.” For small and mid-size buyers, prices “are easily over $800,” he said.

The buyer said the situation might last until the end of July, but not beyond, given that diaper producers in the region reduce their fluff pulp consumption from July through the end of September as there is less diapering of babies during the summer and also that markets will start to slow due to Ramadan, which will be June 28-July 28 this year.

Also he said the high fluff pulp prices and currently favorable super-absorbent polymer (SAP) prices could further the ongoing trend in the region toward thinner diapers, using less fluff pulp and more SAPs while keeping the same quality.

Uruguay pulp. Last week government officials in Uruguay said UPM-Kymmene Oyj is planning to build a second pulp mill in the country, starting construction in 2017, according to local reports. MercoPress said on May 1 that UPM hadn’t commented.

MercoPress also reported that sources with the Montes del Plata BEKP pulp mill said that by the time it starts up, it would produce 400,000 tonnes at most in 2014 due to the delays, with the mill’s effluent plant still waiting environmental licensing. Full production is expected six months after startup, according to the report.

A total of 400,000 tonnes in 2014 is lower still than the most recent official statement. On April 23, in conjunction with joint partner Stora Enso Oyj’s first quarter earnings report, CEO Jouko Karvinen said his company’s share of the Montes del Plata production in 2014 would be approximately 350,000-400,000 tonnes. When doubled to account for Arauco’s share, the figure would be 700,000-800,000 tonnes.

North America dynamics. Softwood and hardwood pulp list prices remained stable in North America in April. Softwood and hardwood pulp producers have made no changes in plans for May.

The March/April list prices in North America were $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 26, FOEX Indexes Ltd. said the NBSK price in the U.S. remained flat at the list price of $1,030/tonne.

The March/April BHKP list prices were $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.

Not all buyers and suppliers are in agreement with a published report showing a $5/tonne April drop in the BEKP price, with some saying the gross price remained at $870/tonne.

“However, the pressure from buyers is increasing” and “it might be difficult to hold where it currently is,” said a sales executive for a Brazilian BEKP supplier. There will likely be some reduction in May but it would be limited to $5-$10/tonne, he said.

Various buyers have said in recent months that they have been hearing a lot more from BEKP suppliers than in the past, as traditional suppliers try to shore up old business and keep market share in the face of the new tonnage coming on stream this year, and as suppliers of new tonnage woo customers.

Referring to both softwood and hardwood pulps, a buyer heading to International Pulp Week said the goal in Chicago is “to push hard for price reductions.”

Like others in the past couple of weeks, this buyer said the delivery situation has shown some improvement and there is some more supply availability, with spot offers now coming in—this buyer wasn’t seeing any in March—and regular suppliers saying they have some tonnage to spare. Referring to NBSK, the buyer said, “We were lucky to get our contracted tonnes going into March,” whereas now spot is being offered in the $700-$720/tonne range (without freight charge). (During April, sources were reporting NBSK spot prices ranging from the low to the high $700s/tonne in April.)

But so far it is limited tonnage and it has only started being offered in the past week, said the buyer, adding, “It remains to be seen in the next week or two if a wave is coming” or if this is just a blip. This is also the case for NBHK, the buyer said.

As for SBSK, the buyer named two producers that have indicated that some extra tonnes might be available—but not until July.

The buyer wasn’t seeing NBHK spot tonnage availability in March, and said April supply also seemed to be pretty tight because of railcar issues, although the last week has seen some loosening.

Various sources were reporting April spot NBHK tonnage prices from the low to the high $600s/tonne, with most in the low- to mid-$600s/tonne range.

In their first quarter earnings reports and in public comments, some North American pulp and paper producers have been noting the first-quarter delivery problems and costs. On May 2, the Montréal Gazette reported Resolute Forest Products CEO Richard Garneau as saying that the company’s backlog will take time to clear out, with delivery delays likely to linger until end of June, as railcars are sill in short supply and spring weight restrictions are hampering truck deliveries.

Paper output. Separately, on May 1, the American Forest & Paper Association (AF&PA) released its March 2014 Monthly Statistics of Paper, Paperboard & Wood Pulp, showing that the U.S. production of paper and paperboard increased 0.4% year-over-year, on a 91.1% operating rate, with production dropping 3.7% for paper while rising 3.2% for paperboard.

The overall increase reversed four consecutive months of year-over-year decreases, which followed four straight months of increases.

The March 2014 production of printing and writing and related papers dropped 2.8% and fell 4.9% year-over-year, but a few sectors (uncoated groundwood and coated freesheet) were in the positive ranks in March.

Europe negotiations. Late last week some buyer and seller sources said the April price in Europe appeared to be settling unchanged at $925/tonne, although not all business had closed at the end of the month, in part because of the May Day holiday. Today a sales executive for a European NBSK producer supplier source said the settled price was $925/tonne.

In recent days, another such source said the softwood pulp balance in the market “is not that bad,” with the world inventory level for softwood pulp below the long-term average. He noted statistics that he said showed that deliveries have matched capacity except for NBSK from Canada, where there were the weather-related delivery problems. But “customers are listening to what is happening in China,” where the Russians “went down so easily,” he lamented.

As have other such sources in recent weeks, he said 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, has resulted in extra demand for his company. Regular Pöls customers “have clearly asked for more tonnage,” he said. He expects this to be the case for the rest of the year, given that the mill is relying on a smaller, older, spare boiler and that it will take a while for the main boiler to be repaired.

Based on the Pöls boiler’s size and that it was a “massive explosion,” another such source estimates the Pöls mill is losing about 10,000 tonnes/month of production. He said it could take quite some time to repair it and he noted that it also would have to meet regulatory approval before it could go back on line.

Regarding 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, and Södra’s Feb. 25 announcement of plans to expand its Värö, Sweden, NBSK mill capacity to 700,000 tonnes/year from 425,000 tonnes/year, to be completed in the third quarter of 2016, a sales executive with a European NBSK producer said both companies have seen that there will be demand for additional softwood pulp tonnage.

Last week a sales executive for a Brazilian BEKP producer said BEKP prices had dropped $10/tonne in April. Sources had been expecting this, or perhaps a decrease of as much as $15/tonne.

The sales executive said this brought April prices to an average $755/tonne, including for both Northern Europe and Italy. He described March gross prices as $760-$765-$770/tonne. While some producers said the March range was $760-$770/tonne, some other sources have said the March gross price was $760/tonne, with a $10/tonne decrease bringing the April price down to $750/tonne. There is also some talk from customers that the price in Europe has fallen to $740-$745/tonne.

There were reports in late March that some regular business in Italy had dropped to $745-$750/tonne. As for talk that some pricing in Italy has fallen to as low as $735-$740/tonne, the aforementioned Brazilian BEKP source said this most probably was limited tonnage offered by a “desperate” supplier to an opportunistic buyer.

He said pressure from buyers continues but that his company thinks prices in Europe are getting close to the bottom and won’t drop more than $10/tonne in May.

For the week ending April 26, FOEX said the NBSK price in Europe was $923.85/tonne, down 40 cents/tonne, while in euros it increased 87 cents/tonne, to €667.96/tonne, as the euro weakened against the U.S. dollar by 0.2%.

FOEX said the BHKP price rose 43 cents/tonne, to $759.02/tonne, while in euros it was €1.26/tonne higher, at €548.78/tonne.

The euro is currently at US$1.38757.

In its April 29 commentary, FOEX said that in the hardwood market pulp, the supply/demand balance continues to weaken but that birch pulp “is in a better position than BEKP.” Sales executives for European birch pulp suppliers have told Industry Intelligence much the same in recent weeks, with one saying the price dropped only $2-$3/tonne in April.

Mediterranean mood. A pulp sales agent in the Mediterranean said early last week that over 10 days, the BEKP price had dropped to $580/tonne from $590-$595/tonne, mostly regarding pulp coming from Iberia.

Another sales agent reported a low-priced, high-volume (5,000 tonnes) deal of Russian NBHK to Turkey.

“Softwood is again strong in Europe and still tight despite what is happening in China,” the first agent said, noting that a number of maintenance stoppages are coming up in Scandinavian countries. Because of the price gap with BEKP, the customers in his region are buying less BSKP, having changed their furnish in favor of BEKP as much as possible, he said, adding, however, that this means they need much stronger softwood grades, such as from British Columbia and Scandinavia, to compensate.

A pulp buyer in the Middle East said that because most producers have started using more short fiber because of the price advantage, it is now possible to find some extra quantity of NBSK.

Both sources said tonnage from Suzano Papel e Celulose’s new mill in Maranhão, Brazil, isn’t yet available in their region. “At the same time, the spot prices are still trending down,” said the buyer, adding that he doesn’t think this is because of the psychological effect of new tonnage that will hit the market this year, because he has been seeing extra supply since last year.

He said the April BEKP price range was $570-$580/tonne, down $20/tonne from March. NBHK and SBHK were both at $590-$600/tonne in April, with NBHK down $10-$20/tonne and SBHK unchanged to down $10/tonne.

On the softwood paper-pulp side, He said NBSK and SBSK fell $5-$10/tonne, depending on the starting point, to $730-$735/tonne and $720-$725/tonne, respectively. As mentioned above, he said fluff pulp shot up $60/tonne, to $780-$800/tonne from $720-$740/tonne.

For May, he expects NBSK and SBSK to fall another $5-$10/tonne, NBHK to be flat, BEKP and SBHK to go down $10/tonne, and fluff pulp to go up $10/tonne.

China slow. For the week ending April 26, FOEX said the NBSK list price in China fell $5.40/tonne, to $745.64/tonne, and that the BHKP price fell $7.90/tonne, to $612.06/tonne.

During April, Canadian and European NBSK producers reduced their prices typically by $20/tonne, after Arauco reduced its BRKP price. This put the gross price of Canadian NBSK at $760/tonne for reinforcement grade and $750/tonne for commodity grade.

A Chinese pulp sales agent said Canadian NBSK price moves in May would depend on how eager they are to sell. He said he doesn’t think Chinese traders or customers have a lot of inventory and they still need softwood pulp. “They need it from Russia, they need Canadian pulp definitely,” he said.

There isn’t much urgency for hardwood pulp, he said, adding that as of earlier last week, “Suppliers and buyers are not talking for May.” He said the April price fell “at least” $20/tonne, to $550-$560/tonne (net). (Others have also been quoting the $550-$560/tonne net price range.) As for further price decreases, he said it could depend on particular suppliers’ inventory situations and how aggressive customers are. “I think (the price) is almost to the bottom,” he said.

Another pulp sales agent cited a colleague seeking to book May softwood pulp orders in China a few weeks ago, with a “good customer” doing so at the beginning of the week, then later in the week wanting $20-$30/tonne down, which the supplier refused to agree to, so the customer reneged on the order.

A sales executive for a Brazilian BEKP producer said his company is negotiating prices in China in the $570-$580/tonne (net) range but said some deals (not from his company) have closed as low as $550/tonne. China pricing appears to be “very close to the bottom” now, he said, adding that this is why his company expects producers to keep their May prices at their negotiated April levels or for the less competitive producers to “start thinking about small market-related shutdowns.”

However, a market pulp consultant said he is hearing talk from BEKP producers worried that the price could drop quite a bit more as time goes on.

Whether BSKP prices will drop further in June or July will depend on the paper business and the price gap with BHKP, said a major pulp buyer, commenting that the current gap between premium NBSK and the lower end of BHKP is around $200/tonne, and “that’s too big.”

Echoing others, he said Brazilian BEKP is at $550-$560/tonne (net) and the other prices include $540/tonne for Indonesian acacia pulp and $530/tonne for Indonesian mixed hardwood pulp and Russian NBHK. (Late last week a regular source said he is hearing that tonnage from a major mill in China is being offered at $525/tonne.)

The Brazilian BEKP sales executive said he thinks producers will keep the same price levels in May “because they are at cost.” As to whether these are the cycle’s bottom prices in China, he said it depends on individual producers’ costs for, say, wood and labor, with some lower-cost producers perhaps willing to go down a little more to get additional market share and keep the cash flow.

He noted that for geographic reasons, Suzano is targeting more tonnage from its Maranhão mill to North America and Europe than to China, whereas the opposite is true for tonnage from its other operations.

(Contrary to others, he said he hasn’t been hearing about local small- to medium-sized mills taking market downtime in response to the low prices. With the recent depreciation of the renminbi, he said he thinks mills can still make money even at $530/tonne.)

He said there continues to be a good market for NBSK but that the price needs to drop to $680-$700/tonne to narrow the gap, and that it could fall below that during the slower summer months. The price gap will narrow if the paper business cannot support the pulp business, he said, adding that the paper market is “the main factor.” He noted that the Chinese economic picture “is not so bright,” and that major indicators are down, such as the GDP, exporting and importing, and the local consumer market.

Even the tissue market is struggling, with so much pressure on prices that some producers are down to the cost of production or lower, which is likely to lead to market downtime among major producers, he said, adding that one major company’s operating rate is already less than 80%. (Adding to this, he said that most of the paper mills were shutting for about four days in observance of the May 1 Labor Day holiday.)

He said traders’ inventories are low because they are waiting for the prices to go down before they buy and are “almost liquidated,” but he said there is enough pulp available in general and noted that Ilim’s Bratsk mill is increasing its production as time goes on.

He said local prices are still down a bit from imported prices, with NBSK from Ilim’s Ust-Illimsk mill at RMB4800/tonne and from its Bratsk mill at RMB4750/tonne, while its NBHK price to North China is RMB4200/tonne. He said certain Interior British Columbia prime NBSK was offered two weeks ago in South China at RMB5350/tonne, while regular tonnage was at RMB5200-5250/tonne.

In its April 29 commentary, FOEX said the large volumes taken in over the first two months, especially from the non-PPPC sources, led to an increase of the pulp stocks among Chinese customers. “This shows now as a retreat in the PPPC-shipment data,” FOEX wrote. “The data is probably also reflecting the strike at Vancouver port and other logistics problems within the month of March.”

It noted that total BSKP pulp deliveries from the PPPC member countries to China were down in March by 9.1% and also down, by 2.4%, for the first quarter total volume, and that in BHKP, the corresponding numbers were down by 9.2% in March and by 2.9% for the first quarter of 2014.

“With demand down, availability of credit is still a problem and with the local currency weakening, pulp prices remain under downside pressure, especially in dollar-terms,” FOEX wrote.

Korea prices. In South Korea in April, BSKP list prices dropped $10/tonne and BHKP list prices also fell $10/tonne or appeared to be on the verge of doing so, according to a South Korean pulp sales agent early last week.

The April prices were $845/tonne for NBSK, $815/tonne for BRKP, and $805/tonne for SBSK, he said.

Several major BEKP producers went down $10/tonne and the agent said an Indonesian producer of mixed hardwood and acacia pulps dropped $10/tonne and that he expected NBSK producers to do so, as well. This would bring the list prices to $630/tonne.

He said BCTMP suppliers also went down $10/tonne in April except for one that had gone down $20/tonne in March while others went down $10/tonne in March. This would put April prices at $640/tonne for aspen 85 bright BCTMP and $630/tonne for softwood BCTMP.

He said the UKP list/net price remained at $710/tonne and that customers are opting for the less-expensive roll pulp instead of sheeted pulp.

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