Market Pulp On the Move, UFS Prices Up, Containerboard Flat

Nov. 5, 2009 - Market pulp is still moving up. Major pulp producers announced November price hikes driven by low mill inventories, strong Chinese demand and better-than-expected domestic demand, explained Deutsche Bank analyst Mark Wilde.

A weaker U.S. dollar is contributing to the rise in export prices, Wilde said. Tembec, SFK Pulp, Domtar, Canfor Pulp, Mercer International, Weyerhaeuser, AbitibiBowater, Alberta-Pacific, West Fraser, P&W, IP and Sodra Cell recently announced $30/mton price hike on softwood pulp that will bring NBSK to $830/mton in North America and $800/mton in Europe.

IP, WeyCo and Abitibi have announced a $30/mton price hike on fluff pulp.

Fibria, CENIBRA and Suzano announced $30-50/mton price hike on BEK taking the U.S. price to $730/mton, Europe to $700/mton and Asia to $660/mton.

October North American list prices are at $800/mton for NBSK and $700/mton for BEK.

Trade sources report that pricing rebound is drawing high-cost Chinese pulp mills back into production — as current market prices are now well above cash-cost, Wilde noted.

Uncoated FreeSheet

Prices are rising. UFS 50-lb offset list prices in October rose $35-40/ton to $845-865 while the cutsize grades remained flat at $1010-1060/ton. The price hike was driven by higher pulp prices, slight pick-up in demand (Sept. shipments flat m/m, -8.1% y/y, YTD -13.5% y/y), and lower September mill inventories (-3.6% m/m).

IP and Domtar recently announced 800K/tpy of permanent capacity closures by mid- 2010, representing 7% of North America UFS capacity.

Producers have also announced a $40/ton price hike on 24-lb white wove envelope paper effective early November.

IP reported pick-up in demand in the direct mail and envelope converters segments, Wilde said.

Portucel started production tests on its 500K/tpy UFS machine at the Setubal paper mill in Portugal. Wilde expects some of this tonnage (perhaps 30%) to begin hitting the U.S. market around year-end.


Will we see price increase announcements before year-end? Posted containerboard prices remained flat in October with 42-lb linerboard at $525-535/ton.

Spot prices were essentially stable, with 42-lb unbleached kraft linerboard in the $440-460/ton range.

Producers would like to pursue pricing initiatives, Wilde said. It appears the issue is "when", not "if". An improving economy & capacity closures may set the stage.

In a surprise move, West Fraser last week announced closure of its ~335,000 tpy kraft linerboard mill (15% of Canadian and 1% of North America containerboard capacity) in Kitimat, BC effective Jan 31.

IP announced 1.4 million tons of containerboard capacity closures (12% of IPís domestic capacity and 4% of total U.S. capacity). Wilde said Deutsche Bank analyst expect Smurfit-Stone Container to announce similar closures around year-end. If that occurs, it would push operating rates back into the mid-90's and support a price initiative, Wilde predicted.

However, new supply (Prattís 400,000 tpy machine) and mill restarts (Renew Paperís 270,000 tpy PM, Smurfitís large No.2 980 tons/day machine at Jacksonville, FL) are all offsets.

Wood supply constraints and seasonal maintenance will constrain Q4 '09 mill output.

IP's shutdown at Springfield, OR liner mill will trim production by 85,000 tons, Wilde said.

Box shipments in September fell 4.8% y/y (Aug -9.6%, July -9.4%).

SOURCE: Deutsche Bank, Mark Wilde

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