Pulp prices under fundamental pressure

September saw an improved outlook for pulp prices in the main Chinese market, with North American and Western European markets continuing to soften, as global economic fundamentals continue to weigh heavily on fibre commodity markets.

Bleached Softwood Kraft (BSK) prices declined only very marginally to USD580/t in China, while Bleached Hardwood Kraft (BHK) prices fell back a little more to average USD485/t, as the chart shows.

China Chemical Pulp Prices by Grade and Spread: Jan ’06 – Sep ’19 (USD/t)

Source: Hawkins Wright

BSK prices are below their sustainable minimums which has, coupled with some improvements in paper demand and prices, led to increased sales, re-stocking and what may well turn out to be a market floor price emerging, at least on the softwood side.

Doubtless there was some additional impact on demand leading up to the week-long 70th anniversary celebrations for the founding of the People’s Republic of China. For some BHK manufacturers in China, any slow-down will have been good news, because they ceased operating at negative cash costs.

As Hawkins Wright commented in a recent edition of Pulp Watch, something like 8.5% of China’s market BHK pulp capacity is either cash neutral or negative, in part because of their reliance on imported woodchips. 

Reduced pressure on BHK producers in China has been modest to date, with the global inventory overhang still significant, and helping to keep prices down. Although there are some faltering demand improvements for Printing and Communication grade papers, they are generally small in number and limited in volume. It will be some time yet before supply returns to equilibrium and the pressure on hardwood pulp prices reduces.

As we have commented previously, leading South American producers may not be in a hurry to increase BHK prices because their best opportunities may lie from forcing the closure of some of the less efficient Chinese mills.

If there is one factor that could save the BHK market from further pain, it could well be the dissolving pulp market, where hardwood chips are used to manufacture synthetic cloth. Although that sector has also slowed in recent months, it adds demand for hardwood pulp across the year. Notably, one major Australian hardwood chip exporter told IndustryEdge recently that around 60% of their forward supply is destined for dissolving pulp markets.

First published in Edition 169 (October 2019) of Pulp & Paper Edge.

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