After prices tumbled again in May, the pulp market remains under pressure in June. Faced with ongoing slack demand, ballooning stocks and no real signs of changes in fundamentals heading into the high summer season, sellers are girding for further pushes from buyers to extract more concessions on pricing this month.
While some sellers pointed to glimmers of hope from Asia, where bleached eucalyptus kraft (BEK) pulp sellers have had some success boosting prices after extensive erosion, several buyers said that the bottom of the European market for this cycle was not yet in place and that there was further room for prices to fall before any leveling out occurs.
Market participants said the BEK market remained soft in mid-June, following the plunge in prices that took place in May. After protracted negotiations for last month’s business that ran well into this month, sources said that the bulk of business closed down by $100/tonne for May but that there were also even lower prices in the market.
“Pricing was down by at least $100/tonne, in some cases more. Pulp producers are just trying to get rid of volumes. There were lots of deals with a portion of volumes at market price and a portion at higher discounts, like spot or special volumes,” a trader explained.
Buyers said that given the poor state of demand and the onset of the summer season, which typically provides little impetus for change in fundamentals, coupled with continued low prices in China, there was sufficient room for more reductions in Europe.
“The market is just very weak – that’s not going to change in the short term, and there is plenty of pulp around. Prices need to come down further before we can say anything about this [pricing cycle] coming to an end,” a buyer said.
“People have heard about the low spot prices in Asia, so I would not be surprised if this impacts Europe and buyers get more reductions this month. Producers want to move volumes, and buyers know that,” a market observer said.
Some sellers found solace in recent successful efforts by BEK producers to nudge prices up slightly in China. South American hardwood producers managed to push through a $30/tonne increase in China earlier this month, according to PPI Europe’s sister publication PPI Asia. Following that, Suzano has announced another $30/tonne price increase for BEK in China effective July 1.
“The recent [pricing] developments in China offer a bit of hope,” a seller said. “There is agreement on one thing – the $450/tonne level [in China] was a solid bottom. It really can’t go any lower. Now traders are coming in strong to buy and build stocks, and integrated producers are stopping production and buying pulp on the market,” he added.
While most contacts noted that the big focus in May negotiations had been on the hardwood side, the overall market softness was impacting the softwood side as well. As with BEK, negotiations for northern bleached softwood kraft (NBSK) business ran long last month and buyers managed to push through reductions, even if they were more modest. Prices for the long-fiber benchmark were down by some $40-50/tonne last month.
“Yes, softwood prices came off by as much as $50/tonne [in May] but the situation was much more under control than on the hardwood side – there was not so much pressure,” a trader said.
While the pressure on softwood was less intense, the general attitude of buyers was the same as for hardwood – there is still room for prices to come down further.
We think the [May] decreases should have been even bigger, and we don’t see this level as the bottom. We’re expecting more reductions this month.
Several contacts said that any further reductions were likely to be relatively limited, in line with reductions of previous months, in the area of $30-50/tonne.
Sources continued to report a poor demand situation that would only add pressure to pricing. “Business is still lousy. The tissue segment is okay, but packaging, graphic paper, specialties, they’re all bad,” a seller admitted. “Things are already quiet now, and it’s likely to only get quieter as the summer goes on,” he added.
There have been a number of events on the production side, both planned and unplanned, in recent weeks.
Suzano, the world’s biggest producer of BEK, said early this month that it would be reducing output across its operations by a total of 4% this year due to a “complex market period.” Fastmarkets’ World Pulp Monthly estimates that to translate to a reduction of some 58,000 tonnes/month of BEK through the end of this year.
Spanish BEK producer Ence announced that its 515,000 tonne/yr Pontevedra mill will start planned maintenance downtime on June 25, which will run until July 5. In May, Ence completed annual maintenance downtime at its 685,000 tonne/yr Navia mill, which took place from May 8-20.
Elsewhere, production at the Svetlogorsk Pulp and Paper Mill in Belarus was halted following an explosion in the plant’s turpentine recovery unit on June 7 that killed three people and wounded four others. The mill can produce some 400,000 tonnes/yr of softwood pulp. World Pulp Monthly estimates that production at the plant will be down through August and puts the lost output at approximately 31,000 tonnes/month.
This week, Stora Enso announced restructuring plans that will see the closure of a number of production units, including its Sunila pulp mill, which has a capacity of 375,000 tonnes/yr of softwood pulp. The firm attributed the move to increased competition for pulp wood and the end of wood imports from Russia, leaving the site no longer cost-competitive. The closure will reduce Stora Enso’s annual market pulp output by some 13%.
What is the cost of downtime? Take a look at Derek Mahlburg’s analysis on the inflationary effect of low operating rates on paper and board mills.
This article was first published in our PPI Europe newsletter. Find out how you can access the latest price, news and market developments in Europe directly from your inbox by speaking to our team.