Cheap pulp spot offers contribute to falling contract prices in China

The spot offers have shaken up the Chinese pulp market amidst new capacity from South America and imports from Russia

An influx of low-priced spot pulp volumes in China and Chinese buyers’ anticipation of price reductions have weighed down the country’s pulp market, despite some recovery in its tissue and uncoated fine paper segments.

The spot offers are available across the board for market pulp grades, mainly from North America and Europe, covering bleached softwood and hardwood kraft (BSK and BHK), unbleached softwood kraft (USK), and bleached chemi-thermomechanical pulp.

Each of the spot offers is reportedly small, just up to several thousand tonnes, but their presence has shaken up the market at a time when massive new BHK capacity from South America are coming to China. On top of that, almost all the pulp manufactured in Russia for export is being sold in China due to sanctions imposed on Russia for its war on Ukraine, weighing on the Chinese BSK and USK markets.

The Ilim Group, which has restructured its previously global marketing operations to focus on China, reported its deliveries of products hit a record-high 1.7 million tonnes last year, which included 1.359 million tonnes of pulp and 360,000 tonnes of board products. The firm plans to boost its exports to 2.4 million tonnes by 2025.

Demand up, prices down

Pulp demand is expected to pick up in China following the country’s reopening. Contacts indicated that tissue and uncoated fine paper mills in the north of country have ramped up production to meet rising consumption with retailers resuming business, people flocking to restaurants and as the March-April peak period for uncoated fine paper kicks in.

Chinese producers have capitalized on the uptick and pushed for hikes for the two grades. The gains have been marginal, of up to RMB 200 per tonne ($29 per tonne) for tissue products and even less for uncoated fine paper. Meanwhile, another virgin fiber-based grade, ivory board, has seen prices decline.

Pulp sellers are increasingly concerned that cheaper prices for imported and resale pulp will drag finished paper prices back or further down.

Producers are using the higher-cost pulp inventories as furnish for paper production and slashing volumes in the belief that prices will decline further.

Resale levels for benchmark Northern BSK (NBSK) have fallen RMB 148 per tonne over the past two weeks to RMB 7,152 per tonne, which is equivalent to $897 per tonne after removing 13% VAT and RMB 150 per tonne in logistic costs.

Resale South American BHK is down RMB 230 per tonne to RMB 5,696 per tonne, equivalent to $710 per tonne minus VAT and logistics costs. BHK manufactured domestically has seen the biggest drop, down RMB 530 per tonne to RMB 5,690 per tonne.

NBSK price slips

A major Nordic supplier has revoked the hike of $20 per tonne for NBSK it proposed last week in China following customers’ resistance. The cancellation was announced even before the two-week stevedore strike across Finland came to an end when the Finnish Transport Union and the employer organization for the country’s ports reached a deal.

Meanwhile, fresh spot NBSK tonnage from Europe has been offered in the Chinese market priced as low as $850 per tonne. As a result, Nordic NBSK has seen a drop-off, down from the $890-920 per tonne assessed last week to $850-900 per tonne. Canadian NBSK levels have stayed flat, though, at $910-930 per tonne. The mid-point for NBSK thus comes to $898 per tonne, dipping $15 per tonne.

One reason that buyers resisted the proposed rise of Nordic NBSK is the flat price of radiata pine offered, especially by Arauco. The Chilean producer has kept the grade’s list price intact for March shipments at $920 per tonne.

Meanwhile, the supplier has kept its USK list price unchanged at $770 per tonne but cut the BHK list price by $20 per tonne to $730 per tonne. Radiata pine has, therefore, clocked in at $870-910 per tonne, the same level as a fortnight ago. Prices for USK imported from the Americas have been steady so far at $680-770 per tonne.

However, sources indicated that sellers have reduced levels for the grade from Europe that is produced on pulp lines, converted from BSK equipment, to as low as $640 per tonne, while top-quality USK is mainly sold at $720-740 per tonne after special discounts are given to regular customers.

In the meantime, even cheaper USK in rolls from the US and Russia are being offered and weighing on the grade’s pricing.

BHK down as buyers cut down on volumes

With customers continuing to cut volume, sellers have been forced to cave in and reduce offered prices for South American BHK from $750-760 per tonne to $730 per tonne, said sellers.

“I believe that once Arauco and UPM start to offer the output from their new BHK lines, likely this month or next, the BHK market will stabilize as the uncertainty stemming from when their new capacity comes on stream will no longer exist,” said a major Brazilian producer.

The uncertainty has clouded buyers’ judgement, leading to them finding it difficult to decide their procurement plans, he added. “Once the situation is clear, customers will make plans and decide when the right timing is to restock. Their BHK stocks, after all, are quite low.”

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