Hardwood Pulp Leads Market in China as Softwood Stumbles

In July 25, 2017

As softwood pulp prices turned down in June and hardwood pulp prices rose or were stable in most major markets, attention turned to the nature of the downturn in global pulp prices. However, there is no absolute certainty that prices will turn down.

In China, in June, the average reported price of Northern Bleached Softwood Kraft (NBSK) pulp fell USD30/t to USD650/t, while the average price for Bleached Eucalypt Kraft (BEK) pulp, was stable at USD675/t.

The all-important spread now shows that in China, BEK prices are higher than NBSK prices. At this point in the pulp cycle, the USD25/t gap is likely to point to a period when switching and substitution will occur.

As the chart shows, any decline in prices would mean this cyclical rise in pulp prices was both shallow and short-lived. That does not necessarily mean that prices will instead rise over the coming weeks, led by higher prices for softwood pulp. Pulp producers would prefer that outcome, but it seems just as likely that hardwood producers will be placed under pressure to lower their prices.

China Chemical Pulp Prices by Grade and Spread: Jan ’06 – Jun ’17 (USD/t)

One indicator that suggests the next movement may be downwards is that China’s pulp import volumes were stable in April and May, at 1,755 kt and 1,790 kt respectively. A continuation at that level in June would result in imports being at or close to 5,300 kt for the June Quarter. If that eventuates, imports would be 18.2% higher than for JQ’16.

Under that scenario, prices may well hold.

The world may also be experiencing the final tipping point – for the market in China at least – for pulp price relativities.

For the year-ended May 2017, China’s imports of Bleached Softwood Kraft (BSK) Pulp, totaled 7,714 kt, which was 10.9% higher than for the year-ended May 2016. However, over the same period, Bleached Hardwood Kraft (BHK) pulp imports to China totaled 8,905 kt and were up 19.7% on the prior year.

BHK is now the dominant pulp in China and its price observably sets the running of prices for other pulps. Over the last decade and more, the differential between the two main pulps has narrowed, on an average basis. It may be about to turn the corner entirely, with the price spread becoming an ever less reliable indicator of the changing fortunes of the global pulp market.

In local pulp markets, Australia’s total imports were 6.8% higher for the year-ended May 2017, compared with the prior year. Imports totaled 292.2 kt, up approximately 20 kt on the prior year, with marginally higher tissue production expected to have been the main driver.

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