Market Pulp Pricing Down, Containerboard, UFS Pricing Under Pressure

Oct. 5, 2010 - Market Pulp prices appear set to decline in October. While no other major producer announced a price decrease after Canfor's announcement of $20/mton price cut on NBSK, Deutsche Bank (DB) analysts say they are hearing of reports that others may announce similar price cuts.

On the hardwood side, Latin American producers Fibria (No. 1 producer in the world) and Suzano last week announced flat global prices on bleached eucalyptus (BEK) pulp for October.

“With buyers pushing for a $40-50/mton price decline this month, it's going to be a battle,” said Mark Wilde, senior analyst at Deutsche Bank covering the Paper & Forest Products sector. “The August global market pulp data (higher inventories and lower shipments) suggest that buyers should have the bargaining power to drive down prices.

“Reports of producers offering [approx.] $25/mton discounts in South Korea also lends credence to this argument,” Wilde said. “We also note that Terrace Bay restarted its 350,000 tpy NBSK mill in Ontario this week.”

Containerboard producers are on the defensive after failing to push through a third price hike this year.

“The risk is that prices could begin to ease, especially as we approach the seasonal doldrums around year-end. Our discussions with trade contacts suggest that market appears to have a bit more slack than the August operating rate and inventory numbers would suggest. We are starting to hear some reports of “deals” being offered on “side rolls” and other products,” Wilde said.

“Having past the seasonally high period of maintenance downtime (Q2) and with all the macro data pointing to an easing in rate of economic expansion, we think the industry will be forced to announce more downtime during Q4 in order to keep inventories in balance,” Wilde said.

Uncoated Free Sheet
The market is OK — nothing more — and prices appear slightly under pressure, DB analysts noted.

“We are hearing reports of some spot deals on both cut-size and offset rolls,” Wilde said.

“UFS (Uncoated Free Sheet) list price in September remained flat at August levels. Prices for both offset and repro bonds are up $45-50/ton from the $60/ton hike announced in May,” he said.

According to DB, the pricing gains over the last five months have been driven by tight supply even as overall demand remains sluggish, noted Wilde. August shipments were slightly better, +4.1% month/month and -2.4% year/year (July = -2.1% m/m & -5.7% y/y). YTD shipments are now marginally lower than year ago levels (-0.2% y/y). Between the two grades, UFS roll shipments appear stronger due to recovery in commercial printing while cut-size shipments are still hit by high unemployment levels.

“On a positive note, the downturn in market pulp has been more measured than we expected, alleviating the risk that a sharp downward correction in pulp prices could ripple thru to paper prices,” Wilde said.

SOURCE: Deutsche Bank