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The European pulp and paper market was thrown into further uncertainty this week after US President Donald Trump delayed the deadline for reaching trade deals with international partners until August 1.
At the start of the week, there were hopes of a deal between the EU and the US ahead of the original deadline of July 9, which would have avoided hefty tariffs of up to 50% on imports of EU goods to the US. There were reports that the US had offered a baseline tariff of 10% with some caveats, and that the EU might be willing to accept this.
“Last week in particular Trade Commissioner Maroš Šefčovič was in DC and substantial progress was made towards an agreement in principle,” trade spokesman Olof Gill told a press briefing on Monday July 7.
This progress was discussed last Friday with member states. “Since then, we have been continuing political and technical level contact with the US on substance. Our aim remains to find an agreement by July 9,” he said.
While Gill declined to comment in detail on the ongoing talks, he did say the EU remained “fully committed to finding a deal that benefits EU businesses, consumers and the overall global economy.”
“From the get-go the EU has been completely unflinching and unchanging in its position. We want to reach a deal with the US. We want to avoid tariffs. We believe they cause pain. We want to achieve win-win outcomes, not lose-lose outcomes,” he said.
But later the same day, President Trump said the deadline had been pushed to August 1 to allow more time for talks.
The extension should perhaps be a relief, but pulp and paper industry sources said it could just mean more uncertainty in the short term. External market reaction also suggested people were losing patience with Trump and the constant changes in trade policy, which have earned him the nickname TACO – Trump Always Chickens Out.
Nancy Qian, professor at Northwestern University’s Kellogg School of Management, recently highlighted the core challenge facing businesses.
“Uncertainty is the biggest problem of Trump tariffs in more ways than one. It is possible for America to win a trade war because being the world’s largest economy gives it a lot of leverage,” she said. “But uncertainty about what the US wants and how long before US policy changes again is getting in the way.”
The US and the EU are major partners in the pulp and paper trade. The EU exports a lot of paper and board to the US, about 1,600,000 tonnes per year, and a lesser amount of pulp, around 350,000 tpy.
On the flipside, the EU imports around 900,000 tpy of pulp from the US, mostly fluff pulp, and approximately 600,000 tpy of paper and board.
Sources in the European cartonboard market told Fastmarkets that the tariff uncertainty was starting to have an impact on trade flows, with more material meant for the US remaining in Europe, and an increase in cheap Asian virgin cartonboard imports competing with locally produced virgin and recycled board.
On July 7, Finnish major Metsä Group issued a profit warning for the second quarter, blaming poor pulp demand in Europe and China and the tariff threat. It also said it would be cutting production at its paperboard mills by more than the planned amounts because of the impact of tariffs.
“Uncertainty caused by US import duties has had a negative impact on the purchasing behaviour of paperboard customers in particular,” Metsa Group said.
“Therefore, the Group company Metsä Board had to adjust its paperboard production more strongly than previously planned.”
The pulp market meanwhile appeared ready to accept the 10% tariff as long as they had some certainty that whatever agreement was made would remain in place for some time.
“Everybody seems to be able to live with the 10% in place right now. I take that as a minimum compromise, but it would be good for momentum and predictability if there would be a firm number carved in stone – if one can carve anything in stone with Trump – for the next 24 months, so people can make their plans around it,” a seller said.
“A lot of business is not conducted as people don’t know if it will remain at 10% or move elsewhere,” the seller added.
“It’s unfortunate that you cannot plan and that creates problems for everybody. Potentially, we’ll see more than 10% and that can create a lot of trouble. I don’t think anyone believes it could go above 10% for pulp, but the problem is that you cannot plan,” a second pulp seller said.
Meanwhile, some Canadian competitors are making the most of the higher tariff on European pulp imports to the US to gain market share. On a recent earnings call for the first quarter, Mercer International Chief Executive Officer Juan Carlos Bueno said: “When you look at the European pulp that flows into the US, well, that is now taxed or tariffed, excuse me. So that opens an opportunity for us from Canada to become more competitive than the Europeans, which is something that obviously we are going to take advantage of because that allows us to ship products down south rather than across the ocean into China.”
As a result, Mercer was already “moving our pieces” to ensure a bigger flow of pulp into the US than they normally have, he continued.
Containerboard market sources seemed the most relaxed in the current situation. “No one knows what’s going to happen, but suppliers and buyers have more or less agreed on splitting whatever the cost is going to be,” one source told Fastmarkets.
Aside from the possible impact on tariffs on pulp and paper trade flows, the EU economy is already feeling the effects of the trade war, which is also having an impact on demand for pulp and paper, market sources have told Fastmarkets. This has led to a rather more disappointing second quarter in most sectors than had been anticipated going into the year.
Struggling to navigate the uncertainty? At Fastmarkets, we offer price data, analysis and forecasting across pulp and paper grade on a global scale. Speak to one of our experts to find out more.