San Francisco. Jan 24, 2005. /Forestweb/. For pulp suppliers, the market ended on a high note today, with the release of December statistics giving a big boost to Feb. 1 price announcements that had already begun appearing earlier in the week, even as the news of more lost pulp production surfaced. Some business in China has already closed at the new February levels.
By week's end, several major softwood pulp producers--among those known were Weyerhaeuser Co., Canfor Corp., Domtar Inc. and Western Pulp L.P. in North America and Sцdra Cell AB and Metsд-Botnia Ab in Scandinavia--had told customers they would raise their softwood pulp list prices by $30/tonne on Feb. 1. Not all have announced for all markets.
The new prices for northern bleached softwood kraft (NBSK) will be $680/tonne in the U.S. and $660/$670/tonne (depending on the producer) in Europe. The U.S. list price in January is solidly at $650/tonne and most European business is closing on a $630/tonne list, though some North American producers' announced list price is $640/tonne. FOEX Indexes Ltd. said last week's NBSK price in Europe rose by $3.80/tonne to $628.12/tonne.
The January U.S. list price for southern bleached softwood kraft (SBSK) is mostly at $620/tonne, and in Europe, the effective list price is $600/tonne.
With the news today that "World-19" chemical market pulp producers had reduced their month-over-month stocks in December to 31 days, from 35 days in November, industry watchers were quite confident that the Feb. 1 softwood pulp price hike plans would be successful.
"Clearly, the NBSK price increase …will likely be fully implemented, Salman Partners paper and forest products analyst Paul Quinn wrote in a research note today, mentioning December's record shipment levels. "In addition, we now no longer expect rising inventories in January. This should set up further price increases for Mar. 1 or Apr. 1." Quinn added that his group's 2005 NBSK price forecast of US$605/tonne is now $30/tonne "too light."
And Citigroup paper and forest products analyst Chip Dillon said in a research note that today's overall favorable data, coupled with the continued weakness in the U.S. dollar, supports his team's favorable view of the near-term outlook for the pulp markets, as well as its earlier 2005 forecast of an average $690/tonne for NBSK delivered into Europe, up from $615/tonne in 2004.
Strong signs. A top sales executive for a pulp producer said today that he wasn't surprised by the December statistics, since his shipments have been so strong and since he has seen a lot of demand from customers his company normally doesn't supply--apparently because they are having trouble finding pulp.
With so much momentum already from major pulp producers' price increase announcements, along with positive market developments, there is no doubt that other producers will follow the softwood pulp price announcements. Some have said they will be out next week. Various North American pulp producers are waiting for a few more indicators, including what bleached eucalyptus kraft (BEK) pulp producers will do, before they make a move.
"I'm pretty bullish on the market," said a top pulp sales executive for a North American producer. "There are good signs out there--probably better than what I expected. We just need our short-fiber friends to be more aggressive."
Various suppliers say they are sold out. One said he is taking March-to-May orders in Europe.
Only Weyerhaeuser is known to have announced a hardwood pulp price increase at this time, but that was for its southern bleached hardwood kraft (SBHK). Contrary to other SBHK producers, it had not announced a higher January price.
Developing issues. North American-produced hardwood supplies are still very tight, not only because of various mill shuts, but also because of ongoing weather issues in the U.S. South and switches by hardwood pulp mills to at least part-softwood pulp production.
Furthermore, pulp transport has been an issue in the U.S. Southwest, following the major flooding that has at least temporarily wiped out rail lines. This is on top of the ongoing problems securing trucks for transport and the scarcity of vessel space for overseas shipments.
A North American hardwood pulp producer said that even without hardwood announcements, spot business and regular business that isn't under contract would see increased prices. This would help close the gaps that have widened so much between list prices and net prices that many buyers of North American hardwood don't even talk in list price terms.
Buyer and supplier sources have said that the January hardwood pulp prices in the U.S. have risen by $20-$30/tonne, depending on the producer and the beginning price. The list prices are $590/tonne for maple-grade northern bleached hardwood kraft (NBHK), $580/tonne for aspen and mixed NBHK, and $570/$580/tonne for SBHK. BEK is $585/tonne.
In Europe, market sources said list prices appear to be going in, with BEK and Scandinavian birch at $550/tonne, NBHK at $540/tonne, and SBHK at $530/tonne.
A southern European agent said the gross SBHK price in Italy is expected to be $520/$530/tonne. He added that paper producers in Italy, seeking to reduce costs, have decided to replace softwood grades with hardwood grades as much as possible.
A North American agent said spot hardwood prices in Europe are now about 3%-5% lower than list prices, but that spot softwood prices are around 10% off of list. He added that there isn't much North American hardwood pulp to be had, and that "what's around is not cheap." He said there is "nothing" in the U.S. and that Canadians, with their weak dollar, would rather sell only in the U.S. or Europe or "it's not worth it."
Less around. Pulp producers are also buoyed by the tightened supply due to shuts at a growing number of mills: the closure of the St. Anne-Nackawic Pulp Co. Ltd. northern hardwood market pulp in Nackawic, N.B., down since September; the closure of UPM-Kymmene's NBSK mill in Miramichi, N.B., down since Dec. 8; the pending closure of Domtar's Cornwall, Ont., pulp mill, which has now been moved up to Jan. 27; the temporary closure of Domtar's pulp dryer at its Ashdown, Ark., mill, which will stay down at least until Apr. 1; the indefinite shut last week of Stockton Pacific Enterprises' approximately 190,000 tonnes/year unbleached pulp mill in Samoa, Calif.; and the surprise shut ordered by the Chilean government this week of Celulosa Arauco y Constituciуn S.A.'s (Arauco) 700,000 tonnes/year softwood/hardwood pulp mill in Valdivia, for an undetermined period of time.
In addition, at least two major hardwood market pulp mills in Southeast Asia--Asia Pacific Resources International Holdings Ltd. (APRIL) in Indonesia and Advance Agro in Thailand--have had significant equipment-related production losses in recent weeks.
Fluff pulp is also seeing a chunk of downtime. International Paper Co.'s Georgetown, S.C., mill will be down in March for roughly a month because of regular annual maintenance as well as boiler repairs, though the mill has built up inventory. IP's fluff pulp capacity, including its Georgetown and Pensacola, Fla., mills, is 450,000 tonnes/year.
Also in this quarter, Koch Cellulose will be taking fluff pulp downtime amounting to about one-month's worth of production, according to market sources.
"The market is already tight," a fluff pulp producer contact noted today. IP, Koch, and Weyerhaeuser have all announced Feb. 1 fluff pulp price increases.
Most of the production-related buzz this week was about the latest developments--the closure of the financially troubled Stockton Pacific Enterprises mill, which is expected to tighten up already-limited unbleached softwood kraft pulp supplies, and the forced shut of Arauco's Valdivia mill. Arauco's pulp mills are major suppliers to China, and, depending on how long the Valdivia mill is down, Chinese buyers could become quite nervous about supply.
Industry players say the Valdivia shut could quickly tighten up the market--especially if it remains closed for more two weeks. An agent noted that Asian buyers could be in for an unpleasant surprise if they wait to act on the Valdivia situation until after their Lunar New Year holiday, which will be underway mostly in early February. "We may see the Chinese come back next week and try to buy, because if they do, we wouldn't ship until the week of Feb. 6 at the earliest," he observed.
China outlook. A Russian supplier said it has just closed business for February in China, up $30/tonne for softwood (to $520/tonne) and up $20/tonne for hardwood pulp. Arauco has also increased its February price by $30/tonne, to $530/tonne.
The current Canadian NBSK price in China is $530/tonne (net), up from $520/tonne in late December-early January, when demand began picking up. A major softwood supplier active in China said this week that it was driven by small internal traders who started to accumulate stocks in the belief that prices would go up.
An NBSK producer in British Columbia said he is waiting until next week to close business at the February price of $550/tonne that some Canadian producers have already said they are seeking. Chinese buyers are expected to wrap up business earlier this month than usual, because of their pending holiday.
Sources note that smaller (but not larger) Chinese paper machines will be down for a couple of weeks for the holiday, and that demand is expected to resume shortly afterward.
The Canadian supplier commented that prices in Asia are still considerably lower than in other major markets. "We need to make ground on that price gap," he said. He said buyers in other Asian markets have been quiet this month, with not much change in softwood prices. "Everyone is waiting to see what happens in China."
BEK producers have been saying that they have closed January business in China at their net $500/tonne price. This week a buyer for a large Chinese papermaker that purchases from various world suppliers put January hardwood prices in general at $480/tonne. A pulp agent said spot prices to China and Korea are $480-$490/tonne, but that the numbers are starting to rise.
The buyer said to expect overall Chinese pulp demand to increase this year, compared to last year, due to the need to feed new paper machine capacity. (By the end of November 2004, pulp imports to China were 17.4% higher than in the first 11 months of 2003).
Elsewhere in Asia, an agent complained that NBSK prices in India and Pakistan have shown little movement in January, because of decisions by certain NBSK producers. But he added that the January spot price for southern bleached softwood kraft (SBSK) in the Middle East is around $530/tonne (which is the current NBSK price in China), and that he expects world February prices to increase, because of overall softwood and hardwood pulp supply restrictions.
Buyer and supplier sources continue to say that Asia Pulp & Paper Co.'s (APP) new Hainan Island 1 million tonnes/year hardwood pulp mill, which started up late last year, hasn't had an impact in the region so far. A supplier familiar with the mill said it has had some operational problems, in addition to its wood scarcity issue, and that it has not yet achieved sufficient enough volumes and quality to satisfy some market pulp commitments. A Chinese pulp buyer noted that APP currently buyers both hardwood and softwood pulp because it doesn't produce enough for its internal use.
Paper steady. Pulp producer sources said their U.S. and European customers continue to produce well.
In early January, European statistics for both coated and uncoated demand improved compared to a year ago, a pulp producer sales executive noted, and North America "doesn't seem to be slowing down."
A contact at a North American integrated producer said his company's uncoated paper machines are running well, but that prices are "very, very aggressive." Sources have been saying that North American-produced coated papers have been faring better than uncoated papers regarding volumes and prices.
But an agent in southern Europe cautioned that the paper market in Europe is "not at all strong enough" to justify another price increase. "Our customers are not seeing any more the advantage of the dollar weakness, so this new price increase will further reduce profitability," he said, commenting that pulp producers appear to be behaving the same old way: 'Let's take today what we cannot take tomorrow,' without thinking about what the situation will be six months from now.
Other market sources have said over time that European papermakers need to curb excess production so they can improve their profits, and that at any rate, global pulp demand is what will drive global pulp prices.