NBSK prices dip in China while BHK talks in stalemate ahead of new pulp capacity

The ball is in the sellers’ court, but time is on the buyers’ side in the Chinese pulp market

Chinese customers have continued to play hardball with suppliers, aiming to press down prices for pulp imports over the past two weeks.

Buyers stepped up pressure in view of the domestic paper and board (P&B) slump, which is being exacerbated by heightened Covid-19 restrictions implemented by various levels of government in the country as infections spiral up.

On top of that, an excess of ivory board supply following the production switch to the grade from duplex board by the country’s top packaging producer, Nine Dragons Paper (Holdings) has led to other producers resorting to drastic price cuts, while selling off pulp stocks on the domestic market.

The situation has seen desperate producers selling commodity grade coated ivory board for RMB 4,600-4,700/tonne ($644-658/tonne, including 13% VAT), and the grade with recycled content going as low as RMB 3,800/tonne.

That represents a steep drop, compared to PPI Asia’s assessed coated ivory board (commodity) prices in October, of RMB 5,670/tonne.

Chinese manufacturers and traders pointed out that their initial hope to see P&B demand pick up near the year’s end and from the Lunar New Year (LNY) vacation in January next year has now been dashed, adding that many plants plan to take downtime next month and let workers take longer LNY holidays than usual, possibly starting on the New Year Day, which falls on January 22.

Conversely, sellers have flagged up potential disruptions on the supply side stemming from woodchip shortages facing Canadian and European pulp producers. They have also pointed to low pulp stocks held by Chinese customers and the limited availability of resale pulp in the domestic market.

Buyers have slashed volumes and even held back on ordering pulp imports. They are increasingly reliant on domestic resale pulp stocks, whose levels are restricted.

As a result, most suppliers apparently intend to hold their prices firm, despite mounting pressure from buyers. With divisions between the views of sellers and buyers deepening, talks have come to a stalemate.

BSK levels head south

Ongoing sluggish demand has prompted suppliers to cut Canadian northern bleached softwood kraft (NBSK) pulp prices to lure back buyers in China.

The concessions have brought assessed Canadian NBSK levels down $10-15/tonne over the past week, to $910-950/tonne. Nordic producers have kept prices intact for the benchmark grade at $910-950/tonne. The mid-point for NBSK has therefore dipped $6/tonne, clocking in this week at $930/tonne.

Contacts, particularly on the supply side, believe an improvement in futures this week, which saw levels climb and positions increase, may arrest the slide in prices for physical BSK.

BSK futures for the most popular January 2023 contract settled at RMB 7,116/tonne on Thursday on the Shanghai futures exchange, up RMB 276/tonne from last week. That is equivalent to $866/tonne after removing 13% VAT and RMB 120/tonne in logistics costs.

On that date, positions for the January contract were at 214,869 lots (or a whopping 2.15 million tonnes) when the day market was settled, after a surge earlier this week.

The January contract is expected to expire around mid-January. That means to avoid facing position squeeze, investors will have to snatch up either resale BSK or the grade’s imports. Contacts project futures-induced demand will likely prevent BSK prices from slipping too much and motivate sellers to hold their ground.

Major suppliers, such as the Ilim Group, have not yet announced their December BSK prices; it is usually done around the 20th of the month.

On Friday, Arauco told clients the list price for its radiata pine will be kept intact at $940/tonne, and for unbleached softwood kraft pulp it will go down by $30/tonne to $780/tonne. However, the Chilean producer did not mention about its bleached hardwood kraft (BHK) pulp levels.

Prices for radiata pine and Russian BSK have thus remained steady at $910-940/tonne and $880-900/tonne, respectively.

BHK impasse

Some producers have told clients that prices for their South American bleached hardwood kraft pulp for December orders will be unchanged. Prices for the grade are steady at $850-860/tonne.

Buyers are pushing back, pointing to the startup of Arauco’s 1.56 million tonne/yr MAPA project in mid-December and the commissioning of UPM’s 2.1 million tonne/ yr Toros BHK mill in Uruguay in Q1.

“The crunch time for South American suppliers is coming. They have to decide how to handle the toughening situation,” said a big-volume buyer. The contact indicated that buyers are avoiding the negotiation table, as they are reluctant to give counteroffers.

The ball is in the sellers’ court, but time is on the buyers’ side.

Customers also pointed to ever more low-priced BHK offers on the Chinese market, which include the grade priced at $730-740/tonne in wet form from Japan, at $770/tonne from South Korea, at $780/tonne from North America, at $810/tonne from South Africa, and at $830/tonne from Indonesia.

Sources said talks of suppliers selling quarterly tonnage, rather than monthly, have been ongoing for weeks and are gaining traction. No decision has been made, though.

A proponent explained that changing to quarterly sales could help relive suppliers’ stock pressure, while allowing customers to restock.

“It will benefit both sides and maintain price stability in the market,” said the contact.

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

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