Pulp prices continue to rise as paper producers look to recover costs

In October 31, 2017

Partly due to the regulatory pressures on recovered paper imports to China, the main softwood pulp grade – Northern Bleached Softwood Kraft (NBSK) – experienced dramatic price increases (reaching as high as USD100/t) in September. Expectations are that prices have risen further throughout October, both on list and at spot rates.

In September, the average price of NBSK in China rose to USD750/t, with the emphasis towards USD800/t by the end of the month.

The situation was similar, but more muted for the main hardwood pulp, Bleached Eucalypt Kraft (BEK), the price of which locked into approximately USD725/t. In October, the list price for BEK was up a further USD30/t. The chart shows the price details for the Chinese market.

Source: Hawkins Wright

The drivers of the historic price stag are, as ever, varied and complex. The narrower than usual spread with BEK helped NBSK prices to rise sharply, as did the short positions of some Chinese paper producers. Those are relatively normal supply and demand conditions, but what is less normal is the regulatory pressures being applied to imports of recovered paper into China.

In July, the Chinese government confirmed that it would ban imports of Mixed or Unsorted recovered paper. The market immediately tightened and shifted emphasis toward virgin pulp, with recovered paper prices spiking, but volumes declining. This is an ongoing situation to which the market has yet to adjust, but to which it felt compelled to react.

The price spikes may be irregular and one-off, but what they signal, like all market shocks, is that in total, the market participants are struggling to interpret the increasingly febrile fibre supplies situation globally. It will be some time yet before the new normal is fully synthesized.

Looking ahead, it is difficult to see the next downward price cycle being especially protracted. There is a small amount of new capacity scheduled to come on line in 2018, very little possible in 2019, before prospective new volumes become available in 2020. Analysis by Brian McClay & Associates in their Market Pulp Monthly outlines this, and also the relatively low amount of maintenance downtime planned for coming months.

Pulp markets are tightening by degrees, with a cyclical downturn probably due in early 2018, before the demand and supply dynamic described above kicks in. That will see pulp prices rise and maintain strong positions, perhaps until early 2021.

The outlook for suppliers of higher quality woodchips continues to be strong.

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