Market Pulp Price Surge: What's Driving Prices Higher?
Between December 1, 2020 and late February 2021, bleached softwood kraft futures were up 48% on the Shanghai Futures Exchange (SHFI), and additional price increases have been announced.
Author: Joanna Wilhelm for Forest2Market
April 15, 2021 - Market pulp is a critical global commodity within the pulp and paper industry. As such, market pulp is a constant fixture in global trade flows because of its primary role in manufacturing numerous paper grades.
Market pulp prices have always been volatile and kraft market pulp, in particular, saw some of its lowest prices in the last 10 years in 2020. However, 2021 has brought price increases with skyrocketing spot prices in February and early March. Between December 1, 2020 and late February 2021, bleached softwood kraft futures were up 48% on the Shanghai Futures Exchange (SHFI), and additional price increases have been announced, leaving buyers wondering what has happened and when it will end.
What Factors are Influencing These Price Increases?
- Ocean freight shortages and freight price increases – The lack of containers and the challenges of ocean freight have been getting a lot of attention as of late, along with price hikes in shipping rates. The good news for paper manufacturers, however, is that market pulp typically ships via breakbulk, so there is no competition for the currently hard-to-come-by containers. However, if ships aren't going to sea due to a lack of containerized freight, then breakbulk market pulp shipments will likely also remain at port until there is sufficient cargo to travel on the same ships. Also, with competition increasing for cargo vessels, these vessels are getting priority for berthing spaces at port terminals ahead of other breakbulk vessels in order to turn the cargo vessels, and the containers on them, around. While market pulp price is not generally directly impacted by freight price increases related to container shortages, the overall ship availability is adding pricing pressure.
- Increased at-home tissue demand – With the numerous waves of lockdown orders, work-from-home, and remote learning put in place to help contain the spread of the COVID-19 pandemic, at-home tissue demand increased while away-from-home demand experienced a decline. Countries, like China, are also seeing a shift toward premium toilet tissue and paper towels with the growth of the middle-class. Premium, at-home toilet tissue and paper towels are composed of more virgin fiber, whereas commercial tissue and towel producers use less virgin fiber and more recycled fiber to economically manufacture these basic products. In fiber-short countries like China, this results in increased demand for kraft market pulp in order to produce these premium tissue grades.
- Chinese ban on sorted office paper – In 2017, China implemented a ban on mixed papers before implementing a complete ban on the import of all solid waste, which took effect on January 1, 2021. This latest ban includes sorted office paper. Without this recycled paper stream coupled with being in a wood-short region, many Chinese producers will have to use virgin market pulp, as the amount of recycled market pulp available currently is insufficient to meet production needs.
- Inventory levels – Companies that use market pulp most likely bought as much as possible while prices were at a record low last year. This inventory is probably running low or has even completely run out by now. The resulting demand, combined with other factors, contributes to price increases.
The complete article with charts and graphs is available on Forest2Market's website: www.forest2market.com/blog/market-pulp-price-surge-whats-driving-prices-higher.
Forest2Market provides pricing data, supply chain expertise and strategic consulting services to participants in the global wood and fiber supply chain. The Forest2Market's unique databases contain more than 400 million rows of transaction data; they are the foundation for all analytics available in the firm's business intelligence platform, SilvaStat360, as well as client resource studies and consulting engagements. To learn more, visit www.forest2market.com.