Pulp market roundup: Softwood and hardwood pulp markets generally stable in June, business fairly quiet going into Northern summer; Mercer first producer to make move for July, announcing US$30/tonne NBSK price hike for China
June 15, 2014
(Industry Intelligence Inc.)
– Pulp markets are fairly quiet with the approach of the Northern summer, with conditions mostly stable.
Global prices of bleached softwood kraft pulp (BSKP) are expected to hold in June or in some cases move up a bit, while prices of bleached hardwood kraft pulp (BHKP) are expected to be flat to down a bit, depending on the market.
As reported June 13, northern bleached softwood kraft (NBSK) pulp producer Mercer International Inc. announced a July US$30/tonne increase for China, to a list price of $750/tonne, marking the first price announcement for July by a pulp producer. Also it was the first formally announced price hike by a Canadian NBSK producer in several months.
Mercer cited ongoing tight NBSK supply and said the driver of its price hike decision "is underlying demand, which is strong.”
An NBSK source said the pipeline “is close to being empty,” following “a period of substantial downtime” and amid production problems at various mills in North America and Europe.
“We are optimistic for the summer,” said a sales executive for a European NBSK producer, noting “the production disturbances we are hearing around us.”
The latest production snag for NBSK occurred on May 10, when the 275,000 tonnes/year Northern Pulp Nova Scotia Corp. mill in Abercrombie Point (the “Pictou” mill) shut down because of a broken effluent pipe. The cleanup of affected waters is underway but it is unclear when authorities will allow the mill to resume operations.
A sales executive for a South American bleached eucalyptus kraft pulp (BEKP) producer said that with the Northern summer coming on, his company expects a slowdown in demand, but “we are ready for it, supply is tight, so there is no reason to increase discounts.”
But with tonnage from the new Montes del Plata pulp expected to hit the market by the end of the summer, he said he expects global prices to remain on the lower end of the spectrum.
Capacity changes. The 1.3 million tonnes/year Montes del Plata BEKP mill, jointly owned by Celulosa Arauco y Constitución SA (Arauco) and Stora Enso Oyj, has already produced some sellable pulp, according to reports. In the words of a veteran pulp seller, “It should ramp up very quickly. The operators are well trained,” having had time to practice while they waited for the final permit allowing the startup, which occurred June 6.
An agent source remarked that even if it takes weeks or months before the market sees meaningful volumes from Montes del Plata, prices would already have been affected because business needs to be concluded for, say, August shipments to various markets. He expects Arauco to target its Montes del Plata tonnage more toward Europe and to redirect its Chilean volumes from Europe to Asia, for logistically related cost reasons. Stora Enso’s best markets have always been in Europe, he said, so the two companies might find themselves competing for the same customers, “to the delight” of those customers.
In his just-released June Market Pulp Monthly report, industry consultant Brian McClay wrote that Suzano Papel e Celulose SA expects its new 1.5 million tonnes/year BEKP mill in Maranhão, Brazil, to run at full capacity by July after having produced 100,000 tonnes in May.
As well, McClay said Oji Group’s 700,000 tonnes/year BEKP closed-loop line at its Jiangsu Oji Paper mill in Nantong, China, has reportedly started up under a temporary permit that limits its annual output to 500,000 tonnes. He said the output would be partly integrated to the company’s 450,000 tonnes/year on-site coated freesheet line, displacing purchased pulp, with the remainder being sold as wet-lap in the local market.
Also McClay said Sun Paper in China is in the process of switching back from dissolving pulp (DP) production to paper pulp at its 300,000 tonnes/year mill in Yanzhou (either softwood or hardwood pulp).
On the BSKP side, McClay said Ilim Group’s 720,000 tonnes/year line in Bratsk, Russia, will start to ramp up to full speed after repairs are made during a two-week maintenance shut in late June, after having reportedly run at 70% of capacity in March and with a 75% rate targeted for the second quarter.
Also in Russia, a 100,000 tonnes/year NBSK increase at Mondi’s Skytyvkar mill could become effective before the summer is out, McClay wrote.
McClay also noted that a number of mostly BHKP mills in North America have switched more of their output to BSKP so far this year and he said industry contacts report a similar move at one South American mill. As well, there is soon likely to be more availability of southern bleached softwood kraft (SBSK) in bales and rolls from normally integrated or partly integrated U.S. paper mills, McClay wrote.
“While most of the industry’s attention has focused on the substantial increase in BEK capacity over the next few years, there is also a potential surge in BSK capacity by 2017” if all of the planned major projects go ahead, McClay wrote. “If this new capacity comes on stream as announced, demand will be overwhelmed and prices will correct again.”
North America stable. As previously reported, list prices in North America of domestically produced pulp are unchanged in June, at $1,030/tonne for NBSK, $990/tonne for SBSK and $870-$880/tonne for northern bleached hardwood kraft (NBHK) and southern bleached hardwood kraft (SBHK). These were also the prices in March, April, and May.
The BEKP list price was unchanged to down $10/tonne in May, to about $855-$860/tonne, and it could be under some more pressure in June. Brian McClay noted in his monthly report that there have been increasing volumes of spot tonnage “available at prices well below domestic BHK.” A sales executive for a South American BEKP producer commented last week that the U.S. is the only market that might have some room for a price decrease, perhaps of $5-$10/tonne over two to three months, given that its prices so far have not yet decreased much.
The Pulp and Paper Products Council (PPPC) released North American printing and writing paper statistics for May 2014, showing that aggregate shipments dropped 7.5% from May 2013 and that year-to-date shipments declined 4.5%, wrote TD Securities paper and forest products industry analyst Sean Steuart in a June 12 research note. Adjusting for the fact that May 2014 had one less shipping day than May 2013, the average-day shipments fell 4.5% year-over-year, he said. And the May 2014 shipment-to-capacity rate of 87% deteriorated from 94% in April and from 90% in May 2014, Steuart said.
A source at a commodity papermaker, commenting on the reduced demand as well as the money-losing quarterly reports by some North American papermakers, said he is wishing for some relief in pulp prices this summer, but that he isn’t very confident that it will happen.
Europe angle. Noting the limited NBSK supply and echoing other sources, a sales executive for a major European producer said the price in Europe in May was mostly unchanged at $925/tonne. And he said it reached $930/tonne for some special grades. Negotiations have been “quite strong—more than I expected,” he said.
The June price in Europe will be stable or “a little bit up” and it could increase in July/August, he said, adding that, from what he has been hearing, there won’t be any more summer downtime than usual among his customers.
A European pulp agent said he expects prices of BHKP to remain under pressure in June, but for BSKP prices to hold. “[S]oftwood looks pretty stable even going forward and its only dilemma is the widening price gap to hardwood, which causes concerns for substitution,” he said. “Hardwood prices have kept up remarkably well until now, that is.”
Regarding the Middle East, he said sales of BSKP have slowed because of limited availability but that BHKP availability is expected to increase through the summer.
In his monthly report, Brian McClay noted that BSKP supply is being reduced by the recent integration to paper of about 85,000 tonnes of NBSK market pulp capacity at Mondi Group’s Štětí mill in the Czech Republic, which has recently started up PM No. 7, mainly producing packaging grades. McClay said BSKP supply is also being reduced by the less-than-50% operations at the 400,000 tonnes/year partly integrated Zellstoff Pöls NBSK mill in Austria. This is in addition to the unplanned outages at a number of NBSK mills in Finland and Sweden.
As well, there was a shipping disruption in Finland on June 11, when stevedores conducted a daylong strike, shutting down ports across the country.
A sales executive for a South American BEKP producer said he expects the price in Europe to be unchanged in June, describing stocks as “well balanced…a little bit tight.” He said May prices were unchanged to down $5/tonne, though customers had expected drops of $10-$20/tonne, ending the month at $745-$755/tonne in Northern Europe and $740-$745/tonne in Italy, with some volumes in Italy negotiated at lower prices than those, as well.
There is “no physical pulp—additional or spot tonnes—available,” he said.
Separately, on June 13, Europulp released May data showing that European woodpulp stocks moved down an estimated 35,872 tonnes from April, or 3.4%, to 1,012,922 tonnes, and marking the second straight month of declines. They increased an estimated 26,895 tonnes, or 2.7%, over those of May 2013.
China outlook. Mercer’s July price-hike announcement for China came ahead of whatever July plans are being made by BSKP producers Arauco and Ilim, one or the other of which is usually the first to come out with its monthly price plans.
The Mercer move “makes sense,” said a sales executive for a European NBSK supplier, although he said that even though it appears Chinese customers “have to buy,” the price might remain flat in July. “In Europe and the U.S. the market is tight,” he said. Chinese customers “have played a tough game” and they pressed prices “down too much,” he said, “but there is not a lot of pulp available.”
He added, “We took quite a hard position in China with customers. Our thinking was that Chinese markets were not going in the same way as other parts of the world.”
Like others, he said Finnish NBSK producers don’t have additional pulp available for China (or for Europe).
A Chinese pulp sales agent was not confident about the Mercer move. “I don’t feel so encouraged,” he said, describing the market as “pretty slow right now, kind of quiet,” with soft demand. “So far I can’t see a chance to get another $30. Even $20 would be difficult at this point.”
But he said Mercer’s announcement sends “a positive message to the market” and he noted that each supplier has its own situation. “Everyone is looking at Arauco and the Russians” to see what they decide to do, he said.
Some customers “still have good inventory, maybe two months,” and some don’t, but they aren’t motivated to buy more in the summertime, the agent said, adding that the paper market “is so soft and the general economic situation is still kind of worrisome” and that people can’t clearly see where matters are headed.
Looking at both softwood and hardwood pulp markets in China, he said, “There’s nothing negative, nothing positive, it’s kind of boring.” He said there isn’t much conversation about business and that traders “don’t want to place orders.” He said he hopes the market will be better this summer than last and that it will at least stay flat.
A sales executive for a Canadian NBSK supplier said the price in China appears to have lifted off the bottom by about $10/tonne this month. Noting that the NBSK list price had reached $770/tonne in March, he described its decrease to $720/tonne in May as a response that was “a bit irrational” to the drop in hardwood pulp prices, “whereas other major markets were all very stable,” he said, adding, “Now we see a demand pull and a not-ready supply of softwood.”
Referring to the Mercer move, he said that if a company is measuring the market fundamentals on a statistical basis, “it has to be able to react” and it “can’t ignore basic fundamentals. To continue to crawl along the bottom” puts a company “in a dangerous position.”
As for the market’s reaction to the gap between softwood and hardwood pulp pricing, he said the two should be delinked. “We have to break this mindset. Softwood is very different,” he said. It’s time to recalibrate the thinking.” There is solid demand and limited supply of softwood and there is a growing trend to use it for specialty applications, he said, adding, “The specialty segment in China has grown quite nicely.”
A sales executive for a BSKP producer said June business for bleached radiata kraft pulp (BRKP) has been concluded at the price of $700/tonne in June, up $10/tonne, but that most of the June business had already been done, at the $690/tonne May/June deal initially offered by Arauco.
A large-scale Chinese pulp buyer said softwood and hardwood pulp prices are unchanged in June and he described the “net-net” price of Canadian NBSK as “not more than $700/tonne.” He said the price is stable because of limited supply following spring pulp mill maintenance shuts but that he expects a more balanced market as the summer unfolds and supply increases.
Given the slow demand as well as China’s economic issues, he expects prices to drop in August or September. He said the extent would depend partly on the price gap between softwood and hardwood pulp, but he is hoping for another $30/tonne down, more or less, to around $670-$680/tonne for NBSK, and he noted this would be similar to what unfolded last summer.
The buyer said the June price of Brazilian BEKP is in the $550-$560/tonne (net) range, with some lower than $550/tonne, which he said is about the same as May but with more volume now being offered on the lower end of the price range in order for suppliers to get their orders. (Others have also reported similar pricing.) These low prices are attractive to Chinese buyers who prefer Brazilian BEKP to local BEKP and they are also forcing local BEKP downtime, he said.
The BEKP price will most likely go down after the summer, but the range is hard to predict, he said.
“Generally the markets in Asia and China still can go down further, even the whole world,” he said, noting that the macroeconomic growth is “still not good.” As well, he said, “[S]ummer is coming, people are relaxing; I think the market is relaxing, too.”
A sales executive for a South American BEKP producer said he expects the June price in China to be unchanged to down $5/tonne, describing his company’s price in May as mostly unchanged at around $560-$565/tonne (net) or up to $570/tonne (net), with the gross price at around $590-$600/tonne. But he also heard net prices in the lower $500s/tonne, he said, adding that the price “cannot go much lower for high-cost producers.” He said demand picked up in May compared to April and there was stronger resistance from the supply side, he said.
Another such source said he expects June prices to be unchanged, whereas a week earlier he thought prices might drop $10/tonne, as happened in May in Asia and Europe, he said.
He noted that BEKP net-net prices have fallen to $550-$560/tonne from $630/tonne in January, mostly based on the anticipation of the startups of Suzano’s Maranhão mill and the Montes del Plata mill, even though the tonnage hadn’t yet arrived. Customers had made up their minds that prices had to fall and it was very difficult to change when people were in that mood, he said.
But he said, “Now the collapse has already happened; the market has already anticipated this.” He added, “People keep buying and the Chinese continue to produce paper. There’s more drama than reality, I think.”
Prices can’t fall much more because of certain South American producers’ costs, including the interest on their debt, he said. But with the new volume coming on, prices could drop down to $530/tonne in a few months, which could lead some companies, which are now producing at maximum capacity, to reduce their output, say by 5%, by running a bit slower and therefore also reducing their costs of production.
“I think the price will go down more because summer’s coming and there is new capacity and the psychology of buyers,” he said, “[but] I think we are near the end in price erosion on short fiber.” When Chinese customers realize the bottom has been reached, they will buy more, but the price is not likely to see much of an increase, he said.
He added that inexperienced executives in some pulp-producing companies “have not gone through all of these crises before” and they “panic easily.”
He said his company stuck to its BEKP price of $560/tonne although there were $540/tonne and $550/tonne prices in the market. “We have been quite tough and customers have bought from us,” he said, adding that his company’s customers know they can count on its consistency and support.
The aforementioned Chinese pulp sales agent said many BEKP suppliers concluded pricing at $550-$560/tonne (net) in May, which was close enough to the bottom to encourage buyers to place more orders. If suppliers are willing to keep this price range, customers will continue to buy in June, he said.
On the bleached chemi-thermomechanical pulp (BCTMP) side, a sales executive for a BCTMP producer said orders from Chinese paperboard producers have slowed down in the last month, adding that that’s “OK for us” because his company needed to get caught up.
He said prices have dropped $10-$20/tonne in the last couple of months. “Everything we’re hearing is that the Chinese board industry built up more inventory than they like,” he said. Pulp buyers have reduced pulp volumes, so “they will have to buy shortly,” he said. But he noted the concerns about the Chinese economy, adding that customers “have to be creative” about getting credit and that some are “definitely complaining” about it.
He said the prices in China and South Korea are likely to drop an average $10/tonne in June, but to stay flat through the third quarter. (In his monthly report, Brian McClay showed a $20/tonne drop in China in May for 80-bright aspen BCTMP, to $565/tonne, but no change for 75-bright softwood BCTMP, at $570/tonne.)
There will be additional BCTMP tonnage on the market when Paper Excellence Group starts up the mill in Chetwynd, British Columbia, that it acquired from Tembec Inc. in March. The 240,000 tonnes/year hardwood BCTMP mill, which has been idled since September 2012, is set to reopen in July, according to reports.
Noting that Tembec “had a hard time making money [at Chetwynd] when prices were higher,” a sales executive for another Canadian BCTMP producer said, “I wonder if they’re looking at the market?”
And Brian McClay said in his monthly report that the Chetwynd startup could be delayed “given that hardwood BCTMP prices have started to slide, especially for printing and writing paper end uses where BCTMP competes most directly with BEK.”
Korea results. In South Korea in May, BSKP prices decreased $20/tonne for NBSK and $30/tonne for BRKP and SBSK, according to an agent in South Korea. BHKP prices fell $20/tonne except for NBHK, which dropped $10/tonne, and BCTMP prices declined $20/tonne, according to the agent. Unbleached kraft pulp (UKP) price was also down $20/tonne.
Theses are the list prices the agent showed for May (net prices in parentheses):
•NBSK: $825/tonne ($730-$750/tonne)
•BRKP: $785/tonne ($685-$705/tonne)
•SBSK: $775/tonne ($675-$685/tonne)
•NBHK: $620/tonne ($540-$550/tonne)
•BEKP: $610/tonne ($555-$570/tonne)
•SBHK: $610/tonne ($530-$560/tonne)
•Indonesian acacia: $610/tonne ($550-$560/tonne)
•Indonesian mixed: $610/tonne ($530-$550/tonne)
•BCTMP, aspen 85-bright: $620/tonne;
•BCTMP, softwood: $610/tonne
•UKP: $690/tonne (this is the net price)
The agent said SBSK is more in demand as a replacement for BRKP.
Most papermakers in South Korea took market-related downtime in May, the agent said. He said Hansol Paper “is still struggling” to secure pulp volumes following the fire damage in its pulp yard in April, which caused a loss of 7,000 tonnes of hardwood pulp. Meanwhile, Morrim Paper has a surplus of mixed hardwood pulp and has been approaching Korean customers, including its main competitor, Hansol, he said. Moorim is planning to rebuild its paper machine in its Jinju mill, he said, adding that there is no information about what grade it will produce.
BCTMP producers had hoped to limit their May decreases to $10/tonne, but one of the BCTMP producers followed the $20/tonne drop of BHKP producers, so other BCTMP producers did so, as well, he said.
He said Arauco had originally planned a $10/tonne UKP decrease for May, but instead went down $20/tonne in response to strong buyer pressure, following four months of unchanged pricing. He said Korean linerboard mills continue to suffer from slow local demand but some have managed to keep running thanks to overseas orders. Linerboard producers reduced their May orders of UKP in anticipation of lower prices in June and mills are adequately supplied with UKP, as well as with their final product, he said.