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Continuously soaring pulp futures prices on the Shanghai bourse and disruptions to supply have spurred suppliers to seek big hikes for bleached softwood and hardwood kraft pulp (BSK and BHK) in China over the past two weeks.
Canadian northern BSK (NBSK) has seen the most aggressive movement, with pricing apparently escalating on the heels of BSK futures.
BSK futures levels for the most traded May contract (sp 2205) settled at RMB 6,278 per tonne on Thursday, equivalent to $857 per tonne after deducting 13% VAT and RMB 120 per tonne logistics costs.
That is a surge of RMB 312 per tonne ($49 per tonne) from early January.
Domestic resale BSK, whose prices have been pegged to futures, have climbed RMB 340 per tonne, clocking in at RMB 6,392 per tonne.
That is equivalent to $866 per tonne, minus VAT and RMB 150 per tonne logistics costs.
With futures levels shooting up, suppliers priced Canadian NBSK this week at $830-870 per tonne, with the product not designated for futures delivery sold toward the low end of the spread, and those accepted for delivery priced at $850-870 per tonne.
Prices for Canadian NBSK hit $830-850 per tonne, up $60-90 per tonne over the past two weeks.
Nordic NBSK has remained at $740-780 per tonne, as major producers have not yet decided prices for the next round’s offers.
The mid-point for NBSK has thus come to $800 per tonne, up $40 per tonne.
However, the standstill for Nordic NBSK may not last long.
The Ilim Group raised Russian BSK prices $70 per tonne earlier this week, taking the list level for the grade to $840 per tonne.
Surveyed Russian BSK has closed at $800-840 per tonne, a jump of $60-70 per tonne.
On Friday, Arauco followed suit, announcing the same $70 per tonne rise for radiata pine, taking its list price to $840 per tonne as well.
Radiata pine has been steady so far at $740-770 per tonne.
The Chilean producers have also raised $50 per tonne for BHK and $20 per tonne for unbleached softwood kraft pulp.
Contacts indicated that most of the buyers who paid current prices for NBSK tonnage were seeking arbitrage and hedging opportunities on the futures markets, rather than planning to use it for the production of end-products.
The same pattern has been seen for Russian BSK, which is sold entirely to Chinese traders.
“When NBSK prices exceeded $800 per tonne, we were skeptical,” said a merchant.
“Continuously rising pulp prices have worsened the mismatch between pulp and paper prices. Traders have no incentive to stock up on such expensive pulp for selling on to end-users.”
He added that deep-pocketed large mills are still capable of getting volumes as they are still receiving BSK cargoes they ordered previously, when prices were lower.
In October last year, BSK prices plunged by more than $100/tonne in the wake of crumbling futures consequent to mandated downtime across the country, as the Chinese government sought to curb energy consumption.
The low-price window lasted for about a month, and then pulp prices rebounded in force.
End-users who missed the boat are now facing a harsh situation.
“The virgin fiber-based paper and board (P&B) market is plagued with overcapacity, and fundamental demand is weak,” lamented a major tissue producer.
“It is not likely manufacturers can implement P&B price increases, especially for tissue products, in the near future to absorb extra pulp costs. (And) I believe pulp prices will get increasingly volatile going forward.”
Most major P&B producers are keeping a close watch on the futures market, but are not keen to participate in it.
Traders have been more active in futures activities, as they find it useful in managing risk.
On Thursday, Brazilian juggernaut Suzano announced a $50 per tonne rise for BHK in China and other Asian markets.
Other suppliers are expected to follow suit. The increase would bring BHK levels most sellers offer from $600 per tonne to $650 per tonne. Price talks are underway.
South America BHK levels have been steady so far, standing at $580-600 per tonne.
While futures have been giving momentum to BSK prices, the BHK segment has been affected chiefly by late deliveries of cargoes from South America.
“The logistics problems take place on both ends of shipment, in Brazil and in China,” a Brazilian producer pointed out.
“At the Brazilian ports where our pulp cargoes are loaded onto the vessels, the queuing time is seeing an extra two weeks due to congestion.
“In China, the queuing time for vessels to unload cargoes at port also needs an additional two weeks due to the country’s strict measures on containing CIVID-19.
“For example, a harbor pilot who boards an inbound vessel to steer it for docking at a berth is required to be quarantined for two weeks, as the vessels are considered foreign territory.
“(So) port operations in China face staffing problems and are less efficient.”
As a result of the delays, South America suppliers have been dealing with current delivery troubles and also with backlogs that have built up since they started.
“The BHK we are selling this month is supposedly for February shipments. But the reality is that it is likely to be shipped out in March,” the supplier contact added.
But meanwhile, large, previously-ordered amounts of South American BHK have been arriving in China and getting unloaded at various ports – a welcome relief for buyers.