BSK import prices look likely to head south in China

Depreciating renminbi and sluggish demand on the back of China’s slumping economy are driving lowered pulp prices

Despite some Canadian suppliers cutting $20/tonne from northern bleached softwood kraft (NBSK) pulp prices in the first half of the month, most other major softwood producers have not announced any BSK offer levels for November business with contract buyers, let alone reductions.

But on October 28, Arauco notified Chinese clients it will lower prices for radiata pine and unbleached softwood kraft pulp by $30/tonne while keeping bleached hardwood kraft (BHK) pulp levels intact. The move will bring the Chilean supplier’s list prices for radiata pine to $940/tonne, unbleached softwood to $810/tonne, while BHK stays at $885/tonne.

Meanwhile, the Ilim Group indicated on October 28 that it intends to hold firm on current Russian BSK levels.

The depreciating renminbi, sluggish fundamental pulp and paper demand on the back of China’s slumping economy, and a lack of arbitration opportunities on the Shanghai futures exchange (SHFE) have led to customers slashing contract BSK volumes.

Chinese customers have also been cutting contract tonnages of BHK imports to the minimum, in view of the upcoming startup of Arauco’s 1.56 million tonne/yr MAPA project in Chile. After several delays, Arauco announced in August that the scheme would be commissioned this month.

Resale pulp picks up

In the meantime, the availability of both resale BSK and BHK in the Chinese market has seen an improvement, leading to price declines.

Resale NBSK has edged down RMB 27/tonne from a fortnight ago, clocking in this week at RMB 7,713/tonne, which is equivalent to $924/tonne after removing 13% VAT and RMB 150/tonne in logistics costs. Resale South American BHK has dropped more, dipping RMB 154/tonne to RMB 6,714/tonne (equivalent to $802/tonne minus VAT and logistics costs).

“Chinese producers have ramped up paper and board production after the week-long National Day holiday in October and are seeking price hikes for fine paper and coated ivory board in the domestic market. This has boosted demand for resale pulp,” said a trader.

The source indicated that the pick-up has been driven by an expectation of demand growth for the traditional Q4 peak season, but it is likely to be short-lived.

The outlook for the Chinese economy for the next several months remains bleak, threatened by the country’s harsh Covid-19 restrictions and its property crisis.

Suppliers have apparently decided to hold their ground, not making substantial price concessions for BSK and BHK imports. However, merchants were willing to lower prices for resale pulp to close deals.

Most BSK imports steady

Assessed NBSK prices have stayed flat over the past two weeks, with Canadian NBSK fetching $920-970/tonne and Nordic $930-960/tonne.

The mid-point for NBSK is unchanged at $945/tonne. Radiata pine prices are expected to slip to $910-940/tonne, following Arauco’s reduction, but Russian BSK is steady at $880-900/tonne.

BSK futures for the most popular January 2023 contract settled at RMB 6,726/tonne on Thursday on the Shanghai bourse, down RMB 84/tonne over the past week. That is equivalent to $809/tonne after removing 13% VAT and RMB 120/tonne in logistics costs.

BHK under pressure

Besides the MAPA startup, UPM’s 2.1 million tonne/yr Toros BHK mill in Uruguay is slated to come online in the first quarter of 2023. Their combined capacity of almost 4 million tonnes/yr has encouraged Chinese clients to think that BHK prices will go down. The questions are when, how, and how much.

Major Brazilian producers have told buyers BHK prices for November orders are unchanged at $850-860/tonne. But customers have responded with silence, reluctant to kick off talks.

A big-volume buyer said his company has decided to order the minimum required by its contracts with suppliers if they refuse to back down during negotiations. “We believe stock pressure will build on the sellers’ side as buyers continue to push for concessions by slashing volumes. And to a certain extent, there will be sellers that can’t take the pressure and will crack,” said the buyer contact.

Major Brazilian producers seem to be braced for the impact. Two indicated that they still have a lot of backlogs to clear and aim to expedite shipping volumes not yet delivered to customers in the next few months.

One of them said his firm believes the impact from the new capacity will only be felt in H2 next year, as the new pulp lines will take some time to be optimized after commissioning. As a result, the firm is planning to move its maintenance downtime to H1 in a bid to alleviate pressure from a potential oversupply situation.

“Several months ago, when MAPA was expected to come on stream, buyers began to slash volumes and hold back on negotiations,” said the supplier source. “At the end of the day, big-volume end-users resumed talks and placed orders with normal tonnages, and most of all, they didn’t press for price drops.”

The contact believed that history is going to repeat itself, adding that there is a new norm on the market. Given so many uncertainties and challenges in North America, Europe, and China, BHK has been in tight supply, he indicated, and to anticipate steep price falls is not realistic.

In China, customers have low pulp inventories, not least of BHK, and they are set to restock when the timing is right.

This article was taken from PPI Asia, the industry’s most trusted pulp and paper market news and prices for Asia. Join paper industry executives, buyers, industry suppliers and financial institutions around the world and keep up to date on the latest market prices and information from Asia. Speak to our team to find out more and subscribe to our newsletters.

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