Pulp demand falls in Brazil due to weakening consumer purchasing power

Pulp market participants report a surprising slowdown in March, but some suppliers are optimistic that the pricing cycle will turn soon

Pulp demand in Brazil was disappointing in March, with a combination of factors — including inflation and high interest rates — affecting consumers’ purchasing power, sources said.

Because consumers have less money to spend, even purchasing of essential products such as tissue paper has been affected, with mills working to offer cheaper products that have lower basis weights or higher recovered paper content.

“We already expected a downturn in January and February, the latter a short month that also had the holiday of Carnival, but March’s slowdown was really a surprise. We only sold 60% of what we had estimated,” a buy-side source said.

Pulp inventories still being adjusted

Demand for tissue and other papers in Brazil has been weak in the first months of 2023, another source said, adding that pulp inventories were still being adjusted.

“We came from a year of high pulp prices and lower availability of pulp in some periods. Now, as clients see that the European FOEX index is moving down, they are of course reducing the pace of purchases and working from hand to mouth,” the second source said.

Moving forward, however, that source was more optimistic. Given lower pulp prices, that source said paper producers could potentially recover margins and, in some cases, regain customers by making more attractive offers.

“It is the natural cycle, we should in the end see pulp demand returning to its regular levels, with paper sectors that still have room to grow consuming more pulp, such as tissue,” that source said.

Buy-side market participants told Fastmarkets that pulp supply is abundant now, indicating that several suppliers have been knocking at their doors.

I have received very aggressive spot offers, with discounts higher than 30%. For pulp without FSC certifications, discounts are even higher.

“The situation is very different from a year ago. Now, everyone is visiting local buyers and aiming to assure contracts and good purchase conditions,” a contact said.

Pulp price drops across Latin America

Pulp prices in Brazil declined in Fastmarkets’ latest monthly survey, due to negotiations following the European PIX of the previous month. Domestic pulp traded at $960-1,330 per tonne in March, still 15.1% higher than a year ago, with the maximum values considered the full list price based on the index.

In Brazil, some sources noted that the business environment is not very positive, with several companies facing problems with cash liquidity.

“We have been very cautious with trading in Brazil; companies are requesting more guarantees to offer credit,” a market participant said.

In other Latin American countries, prices have continued to drop following the international market. Bleached eucalyptus kraft (BEK) traded at $870-900 per tonne, 1.1% higher in the annual comparison.

“Outside of Brazil, the Latin American market never had too many inventories, but volumes are flowing regularly. In Argentina, pulp prices got higher compared to neighboring countries as the risk is also higher,” a contact said.

‘Typical’ price cycle

Supply-side sources in Latin America confirmed that the business environment for pulp was not very positive in March, but sources still believe that market fundamentals are more positive than the most recent price negotiations suggest.

While inventories have indeed increased across the board, several sources said that those levels are still not very high compared with previous peaks.

“Also, we still don’t see the volumes from the MAPA, [Arauco’s new BEK line in Chile]; and UPM in Uruguay hasn’t even started up yet. Buyers are anticipating this capacity, while demand is not that bad,” another contact said.

Another source noted that it is typical to see up and down pricing cycles for commodities, indicating it should not be different for pulp.

“But we see that the price moves are moving at a slower pace during this downturn. I believe all market participants are cautious, as we still see some unexpected issues with supply and volumes from new projects are not in the road yet,” that source said.

As soon as we see more Chinese paper exports reaching the market, we should see more demand coming from there as well.

In China, sources agreed that the month of March was challenging, with buyers halting their purchases ahead of Shanghai Pulp Week.

“They know that demand in Europe got worse, and there is more willingness to add tonnages in Asia now, so they took this opportunity to stop all negotiations — creating some leverage for [March] negotiations,” another contact said.

This article was first published in PPI Latin America, the industry’s most trusted pulp and paper market news and prices for Latin America. Speak to our team to find out more about subscribing to our products and services.

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