Market Pulp Prices Backing Off as Supply Grows, Demand Slows

July 13, 2020 - The typical slowdown in summer demand, coupled with the restarts of a number of pulp mills in North America and Europe, is quickly cooling off the hot market pulp sector, say industry observers.

“Pulp pricing is deteriorating faster and more dramatically than we expected,” said Mark Wilde, senior analyst covering the forest and paper sector for Deutsche Bank, and, “China is the epicenter of the upheaval.”

Last week, Chilean pulp producer Arauco cut July prices by $40-50/mton on all grades, and Wilde said that trade reports suggest pressure for much larger cuts.

“More recently, a major Russian player is reported to have cut prices far more dramatically than Arauco,” Wilde noted. “These latter cuts are so sharp that we expect global reverberations over the next several days,” he said.

The big question is; 'How quickly will producers respond to falling prices?'

Wilde pointed out that without black liquor credits, some high cost U.S. mills may react more quickly than in the first quarter of 2009.

“Although visible inventories appear to be in good share, slower summer demand coupled with restarts in Europe and North America, along with the June start-up of April's 1.3 million ton per year Rizhao, China mill, suggest a growing market imbalance.”

The Rizhao pulp mill, which was restarted in the past few weeks, is expected to produce 60,000 tons of market pulp (bleached hardwood kraft) in July and then gradually ramp up production to 80,000-90,000 tons per month by December. April said that the mill's output will be sold on the Chinese market.

Wilde says lower prices seem certain.

“Earlier this month trade reports suggested that U.S. spot NBSK fell $35/mton, approximately 12% of June U.S. list price, to $870-920/mton,” he said.

SOURCE: Deutsche Bank

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