Pulp prices rise in Europe during September, but market remains fragile

Despite the precarious condition of the European pulp market, there have been some price increases for bleached eucalyptus kraft (BEK) pulp and northern bleached softwood kraft (NBSK) pulp

After approximately one year of price erosion and then a leveling out in August, prices for both the benchmark pulp grades started to reverse course in September and began to head north again. The about-face was somewhat sudden, and many negotiations for September business were still open in the first half of this week, but most contacts agreed that there was upward movement for both bleached eucalyptus kraft (BEK) pulp as well as northern bleached softwood kraft (NBSK) pulp.

At the same time, however, considerable skepticism remained about the underlying market fundamentals in Europe, and multiple sources were wary about the current situation, describing it as “shaky” and “fragile” amid the ongoing weakness of the domestic paper market.

Confusion around NBSK prices

The situation on the NBSK market was particularly murky, according to contacts, with several describing a confused situation in which timing for a price increase was suddenly shifted forward, leaving many unsure as to what was happening and when.

Several market sources said that in September, one Scandinavian producer started to inform customers about a $50 increase for October business but changed course later in the month and said that the hike would be valid immediately, for September business. There were other reports of producers seeking increases, but of less than $50/tonne, in the area of $30/tonne.

This set off a series of confusing negotiations, many of which were still ongoing as of Wednesday this week. Most contacts surveyed suggested that any September increases would be limited to $20-30/tonne, while some said that pricing would remain steady in some cases.

“The situation on the softwood side is not really defined. We understand there were announcements for increases of up to $50/tonne [for September], and that buyers were countering with offers of $20-30/tonne [increases]. The majority of customers will see some increase [for NBSK] for September,” a trader said.

“It’s really up in the air – who made [price increase] announcements and for when?” a seller said. “We see buyers prepared to accept an increase of $20/tonne,” he added.

Buyers confirmed the attempted increase but were pushing back. “The NBSK side is trying to push a price increase in September of $30-50/tonne, however, the chance of acceptance is even lower [than for BEK],” a buyer with negotiations still open in the early part of this week said. He noted that the euro/dollar exchange rate development, which has seen the euro’s value against the US currency erode in recent weeks, effectively making pulp purchases more expensive, was offering some support for buyers.

“They can try whatever they want, but the market is just not there, we’re looking at steady prices,” another buyer said.

Contacts on both the buy and sell sides of the market acknowledged that the underlying fundamentals in Europe remained fluid. “Global demand is improving and producers’ stocks are going down, so there are some positive fundamentals, but the [pulp] market can hardly be described as ‘tight,’” a seller said.

Chinese market drives European price hikes

Several sources noted that upticks in the Chinese market were mostly responsible for any momentum in European pricing at the moment. “The problem is that [any price rises in Europe] are only being driven by China now. The end-use markets in Europe remain weak,” a source said.

As PPI Europe’s sister publication PPI Asia reported last week, spurred by activity on the Shanghai Futures Exchange, prices for NBSK imports to China have jumped, with levels for Canadian NBSK imports rising $20-40/tonne to $700-740/tonne in late September, while Nordic NBSK import prices were up some $40/tonne to $680-700/tonne.

The upward trend is also visible in the US. As PPI Europe’s sister publication PPI Pulp & Paper Week reported this week, NBSK spot prices posted gains of $5-10/tonne last week, the second increase in two weeks, thanks to a modest uptick in demand and an easing of oversupply.

Buyers in Europe were not necessarily receptive to the idea that developments in other regions would determine the course of events here. “This ‘China is paying more’ argument is not really convincing. Just pointing to other markets and saying ‘we can just sell it there,’ well, I don’t necessarily think it’s that easy,” one buyer said.

BEK prices also move up

The situation on the hardwood side was somewhat clearer than for softwood, although here as well, September negotiations spilled over into October, with much business still remaining open in the early part of this week.

Unlike the softwood side, market participants were clear on the increase amount – $50/tonne – that was being negotiated. Some buyers were initially pushing to split that increase in two, with part applying in September and the remainder in October. That became more complicated after some producers announced another $50/tonne increase for October business. One seller confirmed earlier that he had already managed to push through the $50/tonne hike with his customers, and others said on Tuesday and Wednesday of this week that they had also begun closing deals at the full $50/tonne increase.

“That’s it for [BEK] – it’s plus $50/tonne for the big majority of the market,” said a trader. There may be isolated cases of smaller increases or splitting of the hike into two parts, but it is a small minority, a couple of contacts added, suggesting that anyone who managed to get away with anything less than $50/tonne would end up paying the remainder of that hike this month.

Multiple BEK sellers said that customers were in the difficult position of pushing back on the increase while at the same time needing more pulp. “We had several customers, and even non-regular customers, requesting additional volumes. When you do that, it makes it hard to push back against a price increase,” a seller said.

Many sellers also said that they were fully prepared to cut volumes with customers not willing to pay the increase and move the pulp to other regions where returns were higher. “We can send volumes to Asia, and not just China – demand in Japan is also good, for example. It’s the same for the Middle East. This leaves us in a good position – for anyone not accepting the [$50/tonne] increase, we’ll just cut the volumes and move them somewhere else,” a seller explained.

Mixed outlook for paper market in Europe

While prices started to move up in September, there were real concerns about how sustainable this trend would be going into Q4. Contacts generally agree that the paper market in Europe remains depressed and said that it was unclear whether a turnaround was at hand.

“Tissue is relatively steady and doing okay, and there’s some small signs of recovery in some specialty segments and graphics, but there is no real recovery per se,” one pulp seller admitted.

Others expressed concerns about what demand recovery would look like when it did finally arrive. “The market is cyclical, and things will improve, but how much of the demand [for paper] that has dropped off has been destroyed for good? We don’t really know, and it’s something that’s really hard to assess,” a contact said.

“This is definitely not a market that is jumping up. Developments will go slowly, and we could even see a drop [in prices] again, depending on how things go in China. It’s a shaky situation despite the efforts to be optimistic,” one market insider cautioned.

This article was taken from PPI Europe, our newsletter for pulp, paper and packaging market news and prices for Europe. Speak to our team to learn more about our news and market analysis, prices, forecast and more.

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