Hardwood pulp rally continues in China with further price cuts

Overcapacity in the pulp market continues to drive prices down, with Arauco announcing more price cuts for multiple grades in June

A rally in sales of bleached hardwood kraft (BHK) in China last month has continued into May.

After the long Labor Day holiday there, Chinese buyers came back to snap up tonnages. In response, suppliers cut prices further in a bid to boost volumes and offload their stock pressure that had built in the first quarter when clients halted purchases.

Arauco, which is marketing new BHK output from its 1.56-million-tonne-per-year MAPA project in Asia, has cut BHK prices for June shipments by $75 per tonne.

The Chilean producer followed the lead of other producers in South America and Indonesia, who are scrambling to cash in on the rebound, often willing to reduce prices to close deals.

A major supplier reportedly lowered the price for South American BHK to $450 per tonne and sold more than 300,000 tonnes to several customers. Other clients approached the seller but were told the allocation was sold out.

The uptick has prompted some suppliers to consider increasing prices for the grade.

We believe BHK prices have dropped too much. An increase of $20-30 per tonne to the current level would sound more reasonable.
Major South American producer

South American BHK dropped by $10-20 per tonne over the past two weeks.

Bracell and Asia Symbol announce downtime plans

The sister companies of Singapore-based Asia Pacific Resources International, Bracell and Asia Symbol, have announced downtime plans to be taken this month and next month at their respective mills. The curtailment of their BHK output combined is expected to total 200,000 tonnes.

Asia Symbol will shut the smaller 315,000 tpy pulp line at its Rizhao complex in Shandong, China, for eight days in the last week of this month for maintenance. The large BHK line at the facility, which has capacity of 1.7 million tpy, will be closed for about 10 days in late June.

Meanwhile, Bracell plans to carry out maintenance on both BHK lines at its São Paulo mill in Brazil. Each of the two pulp lines has capacity of 1.4 million tpy.

Softwood pulp struggles with further price drops

Besides BHK, Arauco has also cut prices for softwood products - a drop of $40 per tonne for radiata pine and a cut of $20 for unbleached softwood kraft (USK) pulp.

But Canadian producers are still reluctant to lower prices for northern BSK (NBSK) below $700 per tonne. Nordic NBSK has edged down by $10-20 per tonne over the past two weeks. Overall, the mid-point for NBSK is down $10 per tonne.

BSK futures has rebounded slightly on the Shanghai Futures Exchange, with the most tradable September contract climbing by RMB 10 per tonne from a fortnight ago.

Market concerns over excess supply

The BHK rebound has inspired a few producers to look at lifting BHK levels in the near term in the belief that they have regained dominance in pricing. Most suppliers have nonetheless aimed to keep things stable for a few months.

Sellers with market stability in mind have concerns over an excess of pulp supply and overcapacity problems in the downstream paper and board (P&B) industry in China.

Participants pointed out that the pulp price tumble has been a welcome relief for customers. But with pulp costs falling, P&B prices are under increasing pressure proportionately.

Small and medium-sized mills have been taking advantage of the opportunity, restocking on low-cost pulp and looking to ramp up their P&B production. That is expected to exacerbate the existing overcapacity in the P&B market and big producers are not happy with the development.

Additionally, with Arauco’s MAPA project and UPM’s 2.1 million tpy BHK mill in Uruguay gradually ramping up production, more BHK volumes are expected to arrive in China.

Sources reported that leading the pulp restocking are traders, small and medium-sized mills, and a few big tissue paper producers. Large ivory board and fine paper mills, as well as some big tissue paper plants have bought just regular volumes.

Some of these big producers have even slashed tonnages over concerns that during the weak summer period, they may be forced to curb production in July to tackle a potential price war stemming from fierce competition for market shares due to overcapacity.

Meanwhile, an influx of Russian BSK and USK in China has been weighing on the market, with most of the tonnages being kept at the hand of traders.

“The Russian BSK traders bought has either been stored at warehouses or been used for futures deliveries. Many mills don’t use it as furnish for P&B production. Eventually, the tonnage will have to go somewhere. It is a ticking bomb,” a major trader said.

This article was taken from PPI Asia, the industry’s most trusted pulp and paper market news and prices for Asia. Speak to our team to find out more and subscribe to our newsletters.

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