Latin American BEK pulp producers seek price hikes across the board and divert shipments from Europe to Asia
Brazil exported a record 1 million tonnes of bleached eucalyptus kraft pulp to China in July, according to Brazil’s Secretariat of Foreign Trade
The world’s largest bleached eucalyptus kraft (BEK) pulp producer, Brazilian Suzano, announced a new price hike on August 18 for all orders in September, with a $20-per-tonne price increase for clients in Asia and a $50-per-tonne increase for clients in North America and Europe.
In Europe, Fastmarkets has learned, the company is seeking to reach an $850 per tonne price level next month. Other pulp producers started to separately talk with their clients, seeking the same price increases, including Eldorado and Klabin, as well as other Latin American producers. Klabin informed clients on August 21, while Eldorado did so on August 22.
Pulp price gap “too tight” between China and Europe
Supply-side sources told Fastmarkets that the view of producers is that the price bottom was too low in China, and the price gap between that region and Europe now is too narrow.
“We have to consider that prices are shipped from Brazil directly to customers when we talk about China, while in Europe the shipment cost, port handling and inventory is held by producers, so it would not make sense for prices in Europe to go below what is being seen in China,” a source said.
Considering the latest PIX indices of August 22, hardwood pulp prices in Europe and in China only differed by $268 per tonne.
“If we take into consideration that discounts in Europe are at 36% or higher, and prices published for China are net, we are actually seeing prices in Europe lower and that is causing pulp producers to divert all they can to China now,” a second market participant said.
Several supply-side sources said that companies are reducing shipments to Europe at this point, the effect of which will probably be felt when the region’s high season starts.
“There are several clients in Europe that got used to not working with inventories, as pulp producers had excessive volumes. But we will see inventories in the region going down as pulp volumes are being diverted,” a third source commented.
Price bottom reached and stable demand to come?
Those market participants contacted by Fastmarkest are cautious regarding the Chinese macroeconomic scenario, which has been showing bearish perspectives for the coming months.
We know figures are not positive, but we believe that everything is at the bottom now and moving forward we will see a more stable demand.
“Paper producers don’t want prices to erode further, integrated suppliers are not offering pulp to prevent pressure on prices, and there are new paper capacities that need pulp. There was a panic selling of pulp during some months that led prices to go below production cost – we don’t believe this will happen again,” the second source added.
A fourth source detailed: “It is a fact that producers are moving out tonnages from Europe, but they are not only looking for China, but also other Asian Pacific markets, Middle East and Africa, as well as Latin America and North America. Chinese demand is at a good pace now and can absorb what is coming.”
Other sources contacted by Fastmarkets also stated that spot markets are starting to accept higher prices at this point.
On the other hand, some analysts who cover pulp markets continue to be pessimistic about Chinese appetites for all the pulp that can reach the country. Marcio Farid from Goldman Sachs published on August 11: “The bull case scenario from here would be driven by shipments picking up in Europe (end of summer/destocking) and better seasonality in China. But that would still need to be coupled with weak supply from unexpected disruptions. Our base case remains that a sustainable pulp price rally is unlikely and there is still too much volume to be absorbed by the market.”
Brazil exported record volume of BEK to China in July
Brazil exported a record 1 million tonnes of BEK to China in July. This is the first time that the Asian giant has purchased such a volume in a single month, according to historical data from Brazil’s Secretariat of Foreign Trade (Secex) under the Ministry of Development, Industry, Trade, and Services (MDIC), which dates back to 1997.
The exact amount of BEK acquired by China during the month was 1.012 million tonnes, a 33.02% increase compared with the same month in 2022 when the country bought 761,026 tonnes. This quantity also reflects a 56.2% increase from June 2023, during which 647,893 tonnes were shipped to China.
China accounted for 56% of Brazil’s total exports of BEK last month, which amounted to 1.79 million tonnes. From January to July, Brazil exported 5.11 million tonnes of BEK to China. In 2022, Brazil’s total sales to foreign markets totaled 8.33 million tonnes.
According to Fastmarkets senior economist Patrick Cavanagh, China’s recent acquisition indicates an increase in Chinese restocking demand. “Demand has picked up and shipments from Brazil are being diverted away from weaker markets in Europe to China instead,” he said, adding that this situation could tighten market conditions in Europe but also risks oversupplying the Chinese market.
In July, Brazil shipped 251,196 tonnes to the European Union, down by 43.65% from a year earlier when the bloc imported 445,785 tonnes.
Economist Minnie Kong, from Fastmarkets’ fiber economic analysis, noted that pulp shipments from Brazil to China have risen significantly since Suzano added a new pulp line in 2017 and RGE Group started its Bracell mill in 2021. The share of Brazilian BEK in China’s imports has grown from 45% in 2017 to 63% in 2022.
This article was taken from PPI Latin America, our newsletter for pulp, paper and packaging market news and prices for Latin America. Speak to our team to learn more about our news and market analysis, prices, forecast and more.