Pulp market roundup: Softwood remains stronger than hardwood, few price changes seen in June so far, business expected to mostly close later in month when conditions are clearer; China price drops haven't been followed in kind in North America and Europe

Diane Keaton

LOS ANGELES , June 8, 2014 (Industry Intelligence Inc.) – Major pulp markets are generally stable so far this month, with bleached softwood kraft pulp (BSKP) continuing to have more pricing strength than bleached hardwood kraft pulp (BHKP).

The NBSK list price of US$925/tonne in Europe, where supply is snug, appears to be holding. The $1,030/tonne list price in North America remains in place in June so far, with business having been done at that level, although some buyers have expressed hope that it could move down a bit before the month is over. (Sources have noted that net prices for the two regions are similar.)

And in China, the recent downward price movement of BSKP has stopped and some of the lower-end pricing of recent months is moving back up in June.

As previously reported, bleached radiata kraft pulp (BRKP) producer Celulosa Arauco y Constitución SA in Chile announced it would raise its June price in China $10/tonne, to $700/tonne, after having dropped its May price $40/tonne to $690/tonne. Market sources said Arauco already sold much of its June allocation with its earlier two-month offer of May/June tonnage at $690/tonne.

Canadian producers of northern bleached softwood kraft (NBSK) have been quiet regarding official June price announcements for China. Some are offering tonnage at the same prices they had in May, while who were selling on the low end in May are saying their price in June is $10/tonne higher.

NBSK pulp producer Canfor Pulp LP in Vancouver, British Columbia, announced on May 27 that it would hold its list prices in North America and Europe, respectively at $1,030/tonne and $940/tonne, but it did not make an announcement for China/Asia at the time. (Canfor’s Europe price had been announced to take effect last December, and earlier this year some European producers slated prices of $930/tonne or $940/tonne; the market price rose to $925/tonne in March and has remained at that level.)

Resolute Forest Products Inc. in Montréal verbally told North American customers that for June, it would keep unchanged its list prices of NBSK, at $1,030/tonne, southern bleached softwood kraft (SBSK), at $990/tonne, northern bleached hardwood kraft (NBHK), at $880/tonne, and southern bleached hardwood kraft (SBHK), also at $800/tonne.

On the hardwood pulp side, the price of South American bleached eucalyptus kraft pulp (BEKP) mostly slipped about $5-$10/tonne globally in May and it could drop a bit more in June or perhaps remain stable in some markets. Depending on the deal, the May prices were about $850-$860/tonne (list) in North America, mostly $740-$760/tonne (list) in Europe, and typically $540-$560/tonne (net) in China.

Sources last week commented that although prices of BSKP and BHKP in China have dropped in recent months, there hasn’t been the usual similar reaction to China moves in North America and that pricing in Europe has held on the BSKP side, with BHKP down some but not precipitously.

In recent months, “China has certainly weakened $40-$60/tonne on a net selling price but the U.S. price still remains pretty strong for bleached softwood, and hardwood [pulp is holding OK],” said a pulp sales agent in North America. “So it’s a black-and-white story.”

And noting that NBSK held its own in Europe while BEKP fell only $5-$10/tonne in May, a Canadian pulp supplier said, “Those two trends are a little bit surprising.” A market pulp consult, noting the recent softwood pulp price erosion in China, said, “I certainly don’t see it in Europe.”

As for an effect in North America from the China price reductions, a sales executive for a Canadian NBSK producer said he said he isn’t seeing it. “If we had, wouldn’t we see reduced orders?” he said.

There is “a disconnect right now” between China and North America, commented a North American pulp buyer, noting that China’s pulp-buying behavior has become “more traditional” now that it has the big paper machines.

Montes del Plata up. As reported in recent days, the long-delayed startup of the 1.3 million tonnes/year Montes del Plata BEKP mill in Punta Pereira, Uruguay, began June 5, after receiving its Environmental Authorization for Operation (AAO) last week.

Montes del Plata is a joint partnership between Arauco and Stora Enso Oyj in Finland.

On June 3, Juan Bueno, the head of Stora Enso’s pulp division, said in a speech that the Montes del Plata mill’s 2014 output will be about 650,000 tonnes, down from the company’s April estimate of 700,000-800,000 tonnes, Reuters reported on June 3. But also last week there were some other 2014 tonnage estimates from executives, according to published reports.

Meanwhile, the Montes del Plata mill will be running steam and water and would “get the pipes cleaned and then start cooking,” observed a sales executive for a South American BEKP competitor, adding, “I don’t expect any pulp to leave Uruguay before the beginning of July.” He noted that such new mills have to build up their supply chain and have pulp in the port–enough to ship from 10,000 to 20,000 tonnes–as well as to have pulp at destination terminals.

Separately, on June 2, Montes del Plata’s main equipment supplier, Andritz Pulp Technologies, put in a €200 million (US$272.0 million) arbitration claim against Celulosa y Energía Punta Pereira S.A. (CEPP), a joint-venture company in the Montes del Plata group formed by Stora Enso and Arauco, relating to contracts for components of the mill. CEPP said it disputes the claims and that it will also actively pursue claims of its own against Andritz “for breach by Andritz of its obligations under the contracts.”

Rizhao update. Sources said Asia Pacific Resources International Holdings Ltd.’s (APRIL) 1.8 million tonnes/year BEKP mill in Rizhao, China, has lost some tonnage lately. Its recent regular maintenance shuts alone are adding up to 30,000 tonnes (5,000 tonnes in May on the smaller Line 1 and 25,000 tonnes in June on the 1.5 million tonnes/year Line 2). But also a five-to-seven day inspection for recovery boiler cracks could result in lost production of another 20,000 to 25,000 tonnes, adding up to about 55,000 tonnes before the mill restarts, said a knowledgeable source,

Also the source said the recovery boiler at APRIL’s mill in Kerinci, Riau province, Indonesia, is being inspected for cracks, causing lost production of 3,000 tonnes in June. (As previously reported, the Kerinci mill reduced its output by 200,000 tonnes earlier in the year but then was running full.)

Further downtime would be taken if the inspections on either mill require repairs, he noted.

He said the Rizhao mill has a couple of months’ worth of inventory, so the current situation is “quite comfortable,” and also that if needed, pulp from the Kerinci mill could be diverted to serve customers.

Meanwhile, APRIL is starting up a new 250,000 tonnes/year paperboard machine in Rizhao in June or July.

North America solid. A sales executive for an NBSK supplier to North America said the $1,030/tonne list price is “not going down in June because I got all my orders in–contract and recurring business.” He said he has not had pushback this month or last and that he didn’t have to make concessions to a major buyer who had been talking up a lower list price in June. “I don’t see weakness in the summer,” the supplier said.

Nor has he seen a change in the volumes ordered because, he said, customers have had to rebuild their inventories after the winter-related delivery difficulties.

Sources continue to quote spot NBSK in the low- to mid-$700s/tonne and in recent weeks they have said SBSK is in the $680-$720/tonne range, more on the higher end than the lower end. As previously reported, NBSK prices that were in the high $700s/tonne or so when deliveries were hampered by the harsh winter have dropped away, while the range has otherwise been about the same, with prices from the mid- to low-$700s/tonne.

But some sources say individual deals are down a bit. One of the buyers last week said prices have come off $10/tonne from May. “I think the softwood market is loosening,” he said, noting that he has been asked to take more tonnage. “The list has got to come down at least $10 in June,” he added.

A market pulp consultant said the NBSK spot price has dropped marginally since early May—he said to $730-$745/tonne from $740-$745/tonne—and he named a major mill that he said had been short on extra tonnage but now is not.

One of the buyers, for a specialty papermaker, said there started to be talk about more availability of spot NBSK and SBSK in May and that there are offers for June and July. Although the logistical issues earlier this year led to the higher list prices, which have held, “the fact that there are tonnes available says something,” the buyer said. “Our business has not slowed down. I think the demand (for pulp) is as strong as it was a few months ago, at least in North America.”

But this buyer and others said they aren’t hearing much in the way of spot offers for domestically produced hardwood pulp. (Those who do report offers have described prices in recent weeks as in the low- to mid-$600s/tonne.) “I’m only getting [spot offers] on softwood,” the buyer said. “Softwood suppliers contact us but [there’s] nothing on hardwood.”

Another buyer said he has seen a change in softwood pulp pricing, but not in hardwood pulp pricing, which has been “more of a fight,” and he said he recently received a call from an agent seeking to buy some spare hardwood pulp. He added that he can currently get BEKP for $20/tonne less than the price of NBHK, and that his company can easily process BEKP, so it “may go right to eucalyptus.”

Many North American BHKP producers said they want contractual business and that they will not have much available to sell beyond that tonnage, nor will they be looking to export as much, one of the buyers said. This buyer, too, is open to buying more BEKP than the current volume but added, “it’s all predicated on pricing” in comparison with the price of NBHK.

Some sources have said in recent weeks that there are problems getting hardwood chips in some regions of North America, mainly because of wet-weather conditions, and that this has contributed to the tightened supply of domestic hardwood pulp.

A market pulp consultant said the hardwood chips problem has led to production of more softwood pulp in the eastern part of the continent. And has been reported for a number of months, various swing mills have been producing more softwood pulp and therefore less hardwood pulp because the price is so much higher for the former than the latter. (Though softwood pulp yields are lower than those of hardwood pulp, the current price gap between the two makes softwood pulp worth producing, sources said.)

Supplier and buyer sources generally said they are mostly getting rail deliveries on time now, following the logistics drama during the harsh winter. With the exception of one railroad company, which is 15 railcars behind on deliveries, “The rail issues are behind us,” a sales executive for a Canadian NBSK supplier said midweek. Another such source said his company’s priority has been to deliver back-ordered pulp to U.S. customers, which has now been accomplished so it is currently focusing on its Asian customers.

After all they suffered due to a lack of railcars during the winter, various pulp suppliers are trying to plan for more reliable transportation arrangements going forward. One supplier source said he hopes to get a guaranteed rate in exchange for a set amount of tonnes to be shipped each month. But some sources noted that trucks might not be the answer because, as a pulp buyer said, truckers “aren’t stupid.” They know the availability isn’t there and also that the pulp industry doesn’t pay the upcharges that this or that big box chain is willing to pay, he commented.

As for current transport conditions, a pulp sales agent commented that he is trying to get some pulp moved from Savannah, Georgia, to New York, and there is “a huge truck shortage” because produce has the priority. Furthermore, he said, the per-truck price is $3,800.

Separately, on June 3, Business in Vancouver reported that the union representing tugboat crews at Seaspan Marine in Vancouver, British Columbia, voted 100% in favor of a strike, in response to Seaspan’s announcement that it will impose changes to an expired collective agreement June 9. The union was to sit down with Canada’s labor minister Kellie Leitch but if there were no impetus to get back to talks, the strike could occur as early as June 8, Business in Vancouver reported. The Vancouver Sun noted on June 3 that with Seaspan providing 60% of the tugboats serving Port Metro Vancouver’s facilities, a labor disruption would leave some parts of the port unable to operate.

Terrace Bay. During International Pulp Week in Chicago last month buyers were hearing from Aditya Birla Group’s Terrace Bay Pulp in Ontario that the mill would be producing NBSK through 2016, rather than converting it to dissolving pulp (DP) by then. Sources have observed that Birla has no immediate use for expanded DP production; one of the NBSK buyers who was in Chicago noted that the DP market is not strong and that China’s recently imposed anti-dumping duties against a number of DP producers are freeing up more DP.

The Terrace Bay mill started up again in October 2012 after Birla, of India, purchased it in mid-2012. In November 2012 during London Pulp Week, Birla adviser Vijay Kaul told an audience the mill was targeted for conversion to DP in 2015. That timeline has since been extended.

A source familiar with the mill, which had some production hiccups during the winter, said it has been running well in recent months and that May production was very good.

Europe waiting. The pulp market in Europe is quiet, with most business not likely to settle until the end of the month, when market conditions will be clearer, sources said.

The May gross NBSK price for Northern Europe was $925/tonne, unchanged since March.

In Italy the NBSK price rose $5/tonne or more, depending on particular buyers’ April prices, to a May average of $925/tonne, said an Italian pulp sales agent, and late last week the aforementioned market pulp consultant said he is now hearing a price in Italy of $925, up $5-$10/tonne from last month. “I think the bottom is firmer,” he said.

The Italian agent said NBSK is “tight, no doubt” and that some European producers say their stocks are below normal and that maintenance shuts could reduce them further. “The price could go both ways,” he said: up because of the tight supply situation, or down, pulled by the possible weakness of BEKP “and the price differential becoming too wide.”

The consultant said he expects European softwood pulp buyers to challenge June prices, “but supply is restricted.” And he named a major mill that had already been scheduled for major maintenance that he said had unexpected downtime early last week.

Once it becomes time to settle June prices, currency “will be a big one for Europe,” he said, but added that there is “a good chance” the price won’t move down this month.

On June 5, the European Central Bank (ECB) “took extraordinary steps” to stave off the threat of dangerously low inflation in Europe, including cutting a key interest rate below zero for the first time in a bid to get banks to lend more to credit-starved customers, The Wall Street Journal reported on June 6. On that day, the euro fell to a fresh four-month low of US$1.3503, from just above $1.36, but later erased all of the day’s losses, the WSJ reported. “The ECB says it doesn’t target the exchange rate but has warned that the euro’s recent strength is contributing to weak inflation,” the WSJ wrote.

(Today the euro is at US$1.36449.)

Sources said that in May, BEKP lost $5-$10/tonne in Northern Europe and $5/tonne in Italy, settling at various levels according to the deal.

The market pulp consultant said this brought the price down to $740-$745/tonne in Northern Europe, and generally down to $730-$735/tonne in Italy for large-quantity business but he named a lower-still price than that, at least for “one off” business.

A sales executive for a major Brazilian BEKP producer reported a higher range than that of the consultant, saying the price fell $5-$10/tonne in May, with Northern Europe at $750/tonne (“probably the lowest”) to $760/tonne, with a “bottom” price in Southern Europe of $740/tonne.

But, he added, “Demand in printing and writing has been good,” with woodfree papermaker customers reporting that their needs exceed what they had budgeted because they have been running well and have therefore been buying more pulp than they had planned. This also has to do with the narrowing of the rate of decline in the printing and writing sector compared to a year ago, he said.

His company is getting requests for more tonnage than it had expected “and we don’t have it,” he said, adding, “I think there isn’t that much extra pulp around.” He said customers in Europe and the Mediterranean, which he described as having “always been a quite substantial market for North American hardwood” pulp, are telling him “there is nothing” available and that instead they are turning to BEKP.

China market. There are varying reports on the price expectations in China this month, with several sources saying they’ll have a better feel by the time this week draws to a close.

On June 5 an Arauco official said his company had finished all of its June business in China at its announced prices of $700/tonne for BRKP and $565/tonne for BEKP.

Meanwhile, also late last week, a sales executive for a BSKP producer (non-NBSK) said his company hadn’t yet done any June business in China. “Everyone still wasn’t clear on what Arauco settled at, so no one wanted to do business with us,” he said.

A sales executive for a Canadian NBSK producer said his company planning no China price changes in June, describing its price as $710/tonne (net) for reinforcing grade, down $50/tonne in April/May. “I’m confident we can conclude at this price. I think it’s the bottom…at this price the customer reaction is not bad,” he said, adding that he hopes to have a clear reaction this week.

After reducing their volumes below normal in March/April, Chinese buyers made up for it by buying more in May, he said. Specialty paper customers in China have below-average inventories of his company’s pulp and “definitely need” the pulp and are eager to receive their shipments, he added.

The arrival of NBSK from the Canadian interior will reduce the percentage of local pulp in China and therefore lead to higher local pulp prices, he commented.

Unlike some who expect prices to falter during the Northern summer, he said there could be a price increase in China in July/August of, say, $10-$20/tonne. “Last year Chinese customers stopped buying in May, this year customers stopped buying in March, or two months earlier,” so the bottom was reached earlier, he reasoned.

The aforementioned market pulp consultant said some Canadian NBSK producers have done June business at unchanged levels but that there are mixed results so far, with some suppliers saying they can sell all they want and other struggling to get their normal business. He said some smaller-scale buyers and traders are asking for more tonnage but that larger-scale buyers have bought less.

For many months sources have been reporting low paper operating rates in China due to overcapacity, which has kept their prices down, and that situation has been exacerbated by China’s lackluster economy of the past year or so. Last week some NBSK seller sources were reporting paper machine operating rates in China as, say, 70%-80% and 60%-70% of capacity.

A pulp sales agent said virgin pulp prices are too high for Chinese papermakers “to export their way out of their problems” and that pulp pricing might drop $10-$20/tonne during the summer before recovering in the fall.

Separately, one of the sales sources said he wasn’t seeing problems among his customers to open letters of credit (LCs).

The market pulp consultant said traders in China think there could be a pause in pricing, then another tranche down, given the difficult paper situation and the usual expected summer slowdown. “It’s hard to think of upward momentum unless something happens,” he said, adding that ‘stable’ would be great for producers and that they would probably take offers that are a bit lower. One or two producers may be “a little more exposed to China than others,” he added.

On the hardwood pulp side, sources typically reported that May prices slipped $5-$10/tonne, with some saying the BEKP range fell mostly to $550-$560/tonne and others saying it dropped mostly to $540-$550/tonne.

The sales executive for the major Brazilian BEKP producer said talk that the May price fell $5-$10/tonne in China is “pretty much true,” with some business concluding at $550/tonne net and some higher than that. “I think the volumes were good and stocks are not high, and Chinese buyers think it is at the bottom, otherwise they would not have bought good volumes,” he said.

He said he expects the price to hold in June and that buyers who think it could fall have “no real argument.” As for Chinese customers’ complaints about their lack of profitability, he countered, “The price is getting low for a lot of pulp producers.”

The market pulp consultant said some BEKP producers have done June business but others haven’t and that the net range now appears to be $540-$560/tonne. In May, a lot of tonnage was sold out of warehouses and volumes overall were strong, he added.

And one of the NBSK suppliers doing business in China said BEKP pricing hit bottom as of mid-May, at around $540-$545/tonne (net) but that today it is in the range of $550-$560/tonne (net), with the higher BEKP price at around $570/tonne (net).

A sales executive for a major BHKP supplier to China said prices fell about $10/tonne in May, bringing Brazilian BEKP to about $550-$560/tonne and acacia pulp to about $540-$550/tonne. He said his company’s volumes in China “are still very good,” up 15% in May over April. June prices could stay stable or go down $5-$10/tonne, he said, adding that the picture should become clearer as this week unfolds. But he said that in the next two to three months prices might “dip a little, by $10-$20, to a bottom of about $530.”

(He and some other sources are expecting conversions, consolidations, or closures of certain high-cost mills around the world, as well as paper mill closures.)

He noted that China isn’t seeing the same growth as before and that he expects to see “some sort of cooling off in the downstream markets in China.”

A sales executive for a bleached chemi-thermomechanical pulp (BCTMP) producer doing business in China said Brazilian BEKP fell in May to $540-$550/tonne, on the low end for some suppliers, while it was $550-$560/tonne for long-term buyers and $565-$570/tonne for smaller accounts, but he heard that there “some pretty large volumes” were sold.

Noting the “general erosion” of BCTMP prices in China over the last two to three months, he said pricing is being quoted on a net basis, which he said about $20/tonne off of list prices, depending on the size of the customer’s percentage discount.

(For April, market pulp consultant Brian McClay showed the list BCTMP prices in China as $585/tonne for hardwood (80-bright aspen) and $570/tonne for softwood (75-brightness).

The BCTMP source said that in South Korea in May, the BHKP list prices fell $20/tonne, to $610/tonne except for NBHK—all hardwood pulps were at $630/tonne in April—and that in May the hardwood BCTMP price fell $20/tonne, to $620/tonne list. He noted that in this kind of market, pricing settlements get pushed out to the end of the month in such Asian markets as South Korea and Taiwan, so things are quiet now.

“The reality is that hardwood kraft pretty well dictates what happens in the [BCTMP] market” and BCTMP pricing is not much different from that of hardwood kraft pulp, he noted. “Prices are getting pretty low,” he said. “I don’t see a reason to be optimistic. I would hope there is no drop.”

But he said BCTMP volumes around the world remain “pretty steady and we’re well sold.” 

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