Global pulp markets enter oversupply as stocks surge to 48 days-of-supply

Pulp producer stocks continue to climb, but a supply disruption could be on the horizon with Metsä Fibre announcing force majeure due to port strikes

Global pulp markets have entered into an oversupplied zone, with market participants in North America and Europe citing increased availability amid weak demand, and worldwide chemical market pulp producer inventories increased to 48 days-of-supply in January, according to Pulp and Paper Products Council (PPPC) data.

However, as a port strike in Finland continued for a second week, signs emerged that a supply disruption was already growing after major producer Metsä Fibre announced force majeure, industry contacts told Fastmarkets’ PPI Pulp & Paper Week on Feb. 24.

Producer stocks have grown month-on-month

January global pulp producer stocks jumped four days to the 48-day level, and “market fundamentals remain challenging,” the PPPC reported on Feb. 23. Since reversing down to the 42-day level back in September 2022, producer stocks have climbed every month.

Producer inventories on a days-of-supply basis hadn’t touched 48 days in years, with the last comparable bulge in August 2021 at 47 days.

The hefty days-of-supply growth revealed a continued inventory overhang, with roughly a half million tonnes added to supply in the first month of 2023, according to a P&PW poll of industry analysts.

“The January stats are a disaster and could have been forecast a long time ago. But producers are caught between a rock and a hard place with costs in North America that are high relative to South America,” said an industry analyst after the PPPC report. Weakening graphic paper markets would further dampen pulp fundamentals, the analyst noted. Printing and writing paper “prices are dropping in Europe and are about to here with imports from Asia rising fast.”

With December “World-20” stocks closing at an estimated 6.323 million tonnes, January’s four-day rise corresponded to a 497,000-tonne surge that brought the latest stockpiles to an estimated 6.820 million tonnes, the poll showed. If accurate, on a tonnage basis, that’s a 3-½ year high. A bigger tonnage hasn’t been recorded since August 2019, when producer stocks closed the month at 6.992 million tonnes, according to PPPC data obtained by P&PW.

Port strike in Finland continues and Metsä Fibre announces force majeure

Finnish stevedores strike continues. In Europe, supply and demand fundamentals are probably weaker than any major market globally as the year opened with sharp downwards pricing pressure in softwood and hardwood kraft. Pulp stockpiles have bulged at consumers and pulp has piled up in the continent’s ports, according to UTIPULP and Europulp data.

But just as the region seemed to teeter into a downwards spiral, a stevedores strike at Finnish ports began on Feb. 15, which producers have said would disrupt their tonnage outside the country. The strike will “continue until an agreement is reached,” Finnish Transport Union (AKT) announced this week. AKT rejected a collective agreement proposed by a national mediator, calling the proposed salary increase “minimal.”

Finnish market pulp producer Metsä Fibre announced force majeure, according to market participants and a letter to customers obtained by P&PW. The announcement, which producers rarely evoke except during times of strife, formally excuses a company from meeting supply obligations due to circumstances beyond its control.

“Unfortunately, we need to announce a Force Majeure situation that is affecting our pulp supply chain operations,” the firm said in a statement to customers. “For Metsä Fibre, the strike is affecting our supply chain and, therefore, expected to unfortunately cause a delay in our pulp deliveries. This event has taken place for reasons beyond our control and therefore falls within the force majeure provision of Metsä Fibre General Sales Conditions governing our supply relationship. Therefore, Metsä Fibre’s delivery obligation is suspended for the time being for the duration of the strike, including any currently outstanding deliveries.”

Fastmarkets estimates 105,000 tonnes/week of pulp will be blocked

With Finnish exports crimped due to the strike, Fastmarkets’ World Pulp Monthly forecasts that 105,000 tonnes of market pulp capacity in Finland will be blocked from the market for each week the strike is extended. About 1.022 million tonnes of market pulp were shipped per week worldwide in 2022 based on PPPC figures. So a 105,000-tonne disruption would represent an estimated 10.3% of global shipments per week.

The biggest impact will come in pulp shipment delays to European customers outside Finland, exports to China/Asia, MENA, and to a lesser degree, North America.

European market participants recently said China had pulled huge volumes of European northern bleached softwood kraft (NBSK) during a time of unexpected downtime and a mill closure in Western Canada. One contact, whose view was typical, noted that European producers sought China as an outlet due to weak European fundamentals.

“It shows you how (weak) business is in Europe and how much additional supply there is,” said the market participant, before Metsä Fibre announced force majeure. Added the source regarding European producers: “They don’t normally have to sell big volumes to China. Now they do because business is challenged in Europe right now.”

But with the supply flow ceasing from Finland until the strike ends, it could tighten supplies and open up opportunities for other European NBSK producers as well as American southern bleached softwood kraft (SBSK) producers to ship more tonnage to China, contacts believe.

BSK stocks up by 5 days

Worldwide inventories at bleached softwood kraft (BSK) market pulp producers increased five days-of-supply to 48 days, according to PPPC data. Bleached hardwood kraft (BHK) stocks increased four days to 49 days-of-supply.

Global market pulp shipments slumped to kick off 2023. January deliveries totaled 4.023 million tonnes, dropping 3.6% vs year-ago results of 4.175 million tonnes. Compared to December’s preliminary data (results are getting re-issued after IBA statistics become available in March), January shipments tumbled even more sharply, posting a 13% drop vs 4.625 million tonnes.

Worldwide BSK shipments totaled 1.815 million tonnes in January, up 5.6% vs year-ago results of 1.718 million tonnes and edging down 3.1% compared December’s 1.873 million tonnes.

Global BHK shipments totaled 2.055 million tonnes in January, down 9.3% vs year-ago shipments of 2.265 million tonnes, and tumbling 20.4% vs December’s preliminary 2.583 million tonnes, according to the PPPC.

The shipment-to-capacity ratio, which some watch as a key indicator of demand, fell 11 points in January to close at 79%. January is a seasonally weak month for results, but the paltry 79% level was still two points below the January 2022 shipment-to-capacity ratio of 81%.

Interested in finding out more about the pulp market? Take a look at our forecasts for major grades in the forest products industry and subscribe to our newsletters, including PPI Pulp & Paper Week.

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