Despite growing consensus on need for permanent closures, no one steps in to catch the falling knife during London Pulp Week

The following points break down some of the key insights from London Pulp Week 2025 and expectations shaping the pulp market outlook for 2026.

Key takeaways:

• Global overcapacity—driven largely by China’s rapid domestic expansion—continues to suppress prices and margins, while European and Canadian producers face mounting pressures from falling prices, volatile currencies, and new tariffs.
• Production costs are intensifying across Asia due to rising woodchip prices and stricter import regulations, but growth opportunities remain in bleached hardwood kraft (BHK) pulp and specialty market segments.
• Looking ahead, decisive action on permanent closures and strategic adaptation will be crucial for recovery, with potential upside in 2026 if supply-side shocks, trade adjustments, or geopolitical shifts ignite a new bull market.

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Brief glimpses of sun failed to penetrate the gloom that has settled over the pulp and paper industry over the past seven months. While pulp producers combat decades-low profitability with temporary curtailments, paper and board producers face increased pressure from overseas imports, lower demand from anxious consumers and calls from further downstream to lower finished goods prices. Widespread agreement on the need for permanent closures, particularly on the softwood side of the market, was met with doubt as winter in the Northern Hemisphere sets in and BSK assets are increasingly likely to continue running through the cold months ahead. Still, upside risk is present, with rising woodchip prices in China leading the development.

The balance of closure risk is shifting away from the Nordic region

From the second quarter of 2025, European pulp producers have faced the unusual circumstance of declining pulp prices and rapidly appreciating currencies. Pulp prices fell cyclically after a very short and insignificant rally through the first quarter, the third such decline in three years. Prices found bottoms at even lower levels than the previous trough in late 2024. Record-high wood costs in the Nordic region were amplified by a nearly 15% appreciation of the krona against the dollar and a 10% appreciation of the euro, further boosting production costs in dollar terms from already elevated levels and contributing to the lowest levels of profitability since the global financial crisis. A 10% import tariff to access the US market only added to the stressors as pulp prices continued to slide worldwide into the third quarter. Market-related downtime has spiked higher globally, especially for northern bleached softwood kraft (NBSK) pulp producers in Finland, along with the announcements of industry-wide cost-cutting measures. Partly as a result of the pulp mill downtimes, Finnish pulpwood prices have started to decline over the past several months, opening a path for more sustainable wood costs in the event of a permanent closure.

Meanwhile, Canadian pulp producers have been able to enter the US market duty free under the United States Mexico Canada Agreement (USMCA), and the Canadian dollar appreciated less than 5% against the dollar at its peak, which has helped limit the upward push on Canadian producer costs and preserve access to the higher-margin US market. Now in the fourth quarter, the advantages Canadian producers had have eroded considerably, namely with the scrapping of US pulp tariffs in September, along with the rapid increase in duties and tariffs on Canadian lumber that have raised effective rates on Canadian lumber imports to a prohibitive 45%. With a level playing field to offshore pulp importers and the prospect of sawmill curtailments reducing the availability of residual chip supply to pulp mills, Canadian pulp producers are facing higher wood costs and lower margins in the US as more pulp has gravitated toward higher net prices in the US, which have since vanished.

US pulp exporters have also encountered headwinds this year, as Chinese pulp buyers have shunned US imports in favor of domestic production, and were further discouraged by a 10% tariff on US pulp imports, leading to a sharp decline in US pulp exports to China, its largest trading partner. Global bleached softwood kraft (BSK) producer inventory stocks have remained well in excess of a balanced market this year, with our latest estimates from September showing about 500,000 tonnes of excess inventory overhanging the market. Since reaching a peak in 2018, global BSK demand has been trending steadily lower, and there is little prospect for a major demand recovery next year, highlighting the need for permanent closures to correct the excess supply. With surviving mills poised to benefit from looser wood market conditions, the standoff between Nordic and North American BSK mills will likely remain an endurance test as mills continue running through the winter months, which could contribute to more inventory accumulation.

Overcapacity in China remains the anchor on global pulp and paper markets

The investment binge in new pulp lines in China has doubled integrated pulp capacity in just four years, an incredible growth of 15 million tonnes across all grades that was made possible by the softness in the Chinese property sector that deepened over the same period. With the sudden availability of wood from domestic eucalyptus, poplar and pine plantations, major Chinese paper and board producers have reduced their exposure to imported market pulp, while also increasing the competition for rival Indonesian pulp and paper producers that have pursued similar vertical integration strategies in China. Another consequence of the rapid increase in domestic pulp supply has been overcapacity in virtually every major paper and board end-use market in China, resulting in low end-product prices, loss-making margins and an increased focus on exports. Highlighting this oversupply was the inability of Chinese tissue prices to rise significantly during the seasonally strong September and October months, which has cast doubt on the ability of the market to accept higher imported pulp prices. However, new changes to the Shanghai Futures Exchange BSK contract, more stringent inspections of recycled pulp imports by China Customs and a rising trend in Chinese woodchip prices are offering a glimmer of hope that end-product prices will still be able to rise in the next few months. The indebtedness of the industry is also in question. Even after major producer Shandong Chenming temporarily shut 7 million annual tonnes of paper and board capacity, market conditions have only worsened, raising the possibility for additional debt-related closures that could help to tighten end-use markets and remove the ceiling on pulp prices.

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• From January 1, the Shanghai Futures Exchange will no longer accept Ilim’s Bratsk BSK as a deliverable supplier for its BSK contracts. While this change was announced back in June, the bonded warehouses securing physical delivery on the BSK have until the end of the year to remove this lower-quality pulp, opening additional opportunities for higher-quality grades of NBSK and bleached radiata pine to fill the futures warehouses. The January BSK contract rose to the equivalent of $670 per tonne on November 13, higher than net import NBSK prices, which allowed resale NBSK prices pegged to the futures market to rise to the equivalent of $690 per tonne.
• China Customs has tightened import requirements for dry-grinding recycled pulp imports. This lower-quality grade is mainly sourced from Thailand and accounted for about 2.5 million tonnes of fiber imports last year. Chinese containerboard producers will need to find ways to displace this fiber, likely by increasing domestic wood pulp capacity, which will contribute to higher woodchip demand from unbleached kraft pulp (UKP), alkaline peroxide mechanical pulp (APMP), chemi-thermomechanical pulp (CTMP) and semichemical pulp lines.
• Woodchip prices from domestically sourced hardwood chips have risen significantly for the first time since wood suppliers started to shift away from property-market-related end uses to supplying the pulp and paper sector in 2021. The increase has effectively raised production costs for integrated BHK lines in China by about $50 per tonne between July and October. Vietnamese chip exporters have also increased their prices for hardwood chips, contributing to the rise in integrated production costs. While the jump in Chinese chip prices has been mainly attributed to heavy rainfall that has impacted harvesting, there have also been typhoon-related impacts in Vietnam that have occurred against the backdrop of steadily increasing chip demand as domestic pulp production continues to expand.

As sentiment and profitability touch multi-decade lows, upside scenarios look increasingly appealing…and likely

Sentiment across the market pulp industry remains undoubtedly depressed, with both buyers and sellers of pulp reporting concerns around profitability and demand growth. Nevertheless, we continue to be relatively optimistic in our forecasts, and spent a good portion of London Pulp Week explaining the main points underpinning our forecast rationale:

• NBSK prices in China in October put about 25% of the BSK cash cost curve underwater. Despite widespread downtime throughout the third quarter, prices continued to fall globally. Inventories showed some progress in September in moving closer to a balanced market, proving that further curtailment will be needed to work through excess inventory and for prices to move above cash costs. We believe that permanent closures across multiple BSK grades and regions will be necessary to match BSK supply to the new, lower level of BSK demand. These closures will contribute to tighter market conditions next year, but without them, conditions are likely to worsen.
• Although demand for market pulp in China has decelerated, there are still opportunities for growth on the BHK side of the market. Excess capacity that has been offset with market-related downtime this year will find new backfills in specialty pulp markets next year, including as Bracell and Altri shift more into dissolving pulp, as more paper grade pulp is converted to dissolving pulp (DP) in China, and as Suzano and Ence ramp up production of eucalyptus-based fluff pulp. Closures and swings of high-cost BHK market pulp capacity in North America and Europe will also likely play a role in boosting demand for imported pulp. Bleached hardwood kraft (BHK) will continue to gain share away from BSK, particularly in the tissue sector, while also helping increase the virgin share in tissue furnish as high grade RCP becomes increasingly scarce. Combined, these factors will increase the chance of BHK operating rates exceeding the 90% threshold that usually indicates higher pricing power for producers.
• The US dollar has remained relatively weak since its sharp decline in the second quarter of 2025. With the Federal Reserve on a path of gradually cutting rates, we see this weakness prevailing into at least the first half of 2026. The weak dollar will continue to boost dollar costs and squeeze margins, which will be supportive of higher prices across the pulp and paper industry.

With prices and profitability already scraping along rock bottom, upside risk is increasingly relevant as we head into 2026. For China, debt-related closures of paper and board capacity have a proven track record of supporting both pulp and downstream product prices, and market conditions have only worsened since the last major supply-side shock impacted the market a year ago. In the US, adjustments to trade barriers could help limit inflationary impacts, clearing a path for faster rate cuts and more support for the lagging labor market next year. In Europe, the more elusive upside scenario is centered around the end of hostilities in Ukraine, which would provide a much needed boost to sentiment, consumption and growth and would likely result in lower wood costs in the Nordic region as sawmill residuals improve and as bioenergy demand on wood markets subsides. Looking back over the past 10 years, every major pulp bull market has been triggered by a supply-side shock, such as a project delay, mechanical failure, labor strike or natural disaster. While the timing of these incidents may be unpredictable, they are virtually guaranteed to push prices up when they do occur.

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