Shanghai Pulp Week stalemate comes to a head as global costs begin to surge

Key takeaways:

• The global pulp market in 2026 faces rising costs, tightening supply and shifting demand trends across key regions.
• Producers must navigate escalating energy, transportation and raw material costs while adapting to supply-side constraints and market volatility.
• Downstream markets are grappling with oversupply challenges and cost pressures, requiring strategic adjustments to remain competitive.
• Opportunities for resilience and growth despite the challenges posed by geopolitical conflicts and economic uncertainty.

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In March, we concluded meetings during Shanghai Pulp Week, ending a two-week trip where we heard from a wide range of market participants across Europe and Asia that were collectively assessing the rapidly evolving impacts of the conflict in the Middle East. As the conflict reaches the one-month mark, initial hopes for a relatively short incursion have been eroded by escalating threats and attacks on energy infrastructure that will have lasting impacts across global markets. Fastmarkets’ leading paper and board economists have already published Viewpoints on the initial and potential impacts for their respective markets in Europe, North America and Asia. In this Viewpoint, we will take a closer look at the short-term impacts specific to the global pulp markets and discuss some longer-term outcomes.   

Following initial stalemate, producers make some concessions to buyers in China

The start of Shanghai Pulp Week was defined by mixed signals. From the producer perspective, bleached hardwood kraft (BHK) prices had momentum building from a seven-month price rally in the Chinese market. Producer inventories had been declining steadily to below the balance point, indicating a tight hardwood inventory position. On the softwood side of the market, the spread between northern bleached softwood kraft (NBSK) and bleached eucalyptus (BEK) pulp prices had fallen below $100 per tonne, the lowest level since mid-2024 and well below the cost premium to produce NBSK compared with BEK. The narrowing of the spread should motivate buyers to consume more softwood pulp, or to at least stock up on BSK while the opportunity lasts. On the supply side, NBSK markets had recently experienced the permanent closure of a major mill in British Columbia, and some of the largest Finnish producers had announced plans to continue to take temporary downtimes. In the hardwood markets, APP Group recently delayed the start-up of its OKI mill expansion from June to the end of the year, effectively pushing the only source of new supply to the market this year into 2027. The end of the week was marked by another global price announcement from major BHK producers for April business, signaling confidence in the previously announced increase for March and expectations for momentum to carry into April.

Adapting to volatility and oversupply in the pulp industry

However, buyers offered a different perspective. The seasonally strong months for pulp and paper demand in the Chinese market were now past, signaled by the restocking traditionally seen in the weeks following the Lunar New Year holidays. Already, pulp imports to China had risen about 1.8 million tonnes in 2025, and imports for January and February remained strong, demonstrating that pulp inventory was largely changing hands from producers to buyers over the course of the fourth and first quarters. With ample pulp availability and waning seasonal demand trends, buyers’ concern shifted to the lingering oversupply in paper and board markets that had limited the rise in paper prices even through those seasonally strong months. Now, even more uncoated woodfree and ivory board capacity is starting up, including both new machines and the last remaining capacity to be restarted by Shandong Chenming.

Ultimately, suppliers were forced to make some concessions to buyers. Radiata pulp prices declined $20-30 per tonne and NBSK prices dropped $10-20 per tonne in the week following Shanghai Pulp Week. BHK producers also faced resistance, having secured only half of the $20-per-tonne increase they were seeking on March business, and have reportedly revised down their price increase for April to $10 per tonne. The concessions were met with a surge of interest from buyers, which helped push prices higher on the Shanghai Futures Exchange and in domestic resale markets. With Shanghai Pulp Week in the rearview mirror, the industry will now need to contest with the consequences of the conflict in Iran and the far-reaching impacts it will have on cost structures, global growth and demand for pulp and paper.

Surging transportation costs are likely only the first in a wave of cost pressures that will sweep the global economy and pulp and paper markets

As the effective blockade of the Strait of Hormuz approaches the one-month mark, only the initial impacts are beginning to trickle through the global economy. Higher shipping insurance premiums and fuel costs are the first to filter through in the form of shipping surcharges, which have reportedly already reached $10-30 per tonne of pulp. Global markets continue to cling to the assumption that the United States will claim victory and retreat and that markets will return to normalcy in a relatively short period of time. However, there is little indication of this scenario materializing as threats escalate, end goals remain elusive, more US military assets are called to the region, and Iran continues to lash out with drone and ballistic missile strikes across the region, which have already caused long-term damage to infrastructure. The bottleneck is not isolated to the headline freight rates and crude and liquefied natural gas (LNG) supply, but is also affecting refining capacity that will have far-reaching impacts specific to the pulp and paper industry, including on diesel fuel, bunker fuel, base chemicals, fertilizer production and electricity prices, which will place upward pressure on the largest components of the pulp cost structure: wood costs, chemical costs and energy costs. Further implications for inflation, central bank policy and the strength of the dollar are also likely to negatively impact economic growth, demand for pulp and paper, and borrowing costs for future capacity expansion projects.

Global kraft pulp mill cash costs by natural expense

Fourth quarter 2025

Figure 4

While the initial impacts of the conflict are buffered with the release of strategic energy reserves, the consequences to costs will extend beyond transportation costs as energy supply chains lengthen in the coming weeks. With respect to pulp and paper markets, we anticipate similarities to the 2022 energy shock, but with geographic impacts extending beyond Europe.

• Wood costs will see upward pressure from higher fuel costs that increase the cost to harvest and transport wood to pulp mills. Woodchip costs are also on the rise in Asia as seaborne transportation costs surge, showing broad-based wood cost inflation for both integrated and market pulp mills. Mills in China are not exempt from this inflation, as chip prices were already increasing in response to cyclone-related impacts in Indonesia and against the backdrop of steadily expanding demand from the rapid rise of integrated pulp capacity. HHigher fertilizer costs will also filter into wood costs by raising the capital costs of plantation owners and potentially lowering plantation productivity, depending on the severity and length of the impact as fertilizer supply is prioritized for food production.
• Higher electricity generation costs will have disparate impacts, with modern pulp mills benefitting from the ability to sell excess generation back to the grid and some assets being fully insulated from oil and gas prices due to fossil-free investments. Meanwhile older and less-efficient mills will see negative impacts from both higher electricity and higher fuel costs. Ultimately, higher energy prices will lead to a steepening of the pulp mill cost curve.
• Chemical costs will see upward pressure from two key inputs: base chemicals and electricity costs. In 2022, the surge in electricity prices in Europe quickly trickled into shortages of bleaching chemicals as some producers were forced to idle capacity. This time around, the European market is better hedged against a surge in energy prices, with a more diversified supply with respect to both gas suppliers and increased renewable capacity. Nevertheless, as energy benchmarks trend higher, the impact will be felt globally and amplified by the bottleneck of base chemicals currently contained in the Persian Gulf.

Pulp markets in 2026 will likely be defined by rising costs and tightening supply

As the momentum of the Chinese pulp market has slowed in the wake of Shanghai Pulp Week, pulp producers are facing the prospect of a fourth consecutive year of margin compression. Particularly in the Chinese market, where downstream oversupply of paper and board capacity remains a barrier to price appreciation, the scenario of rising costs and stagnant prices is concerning. Still, the upward demand trend in Asian woodchip markets should help support paper and board prices and has already pushed up the BHK price floor by about $70 per tonne compared with the cyclical low registered last year. As the strong showing for imported pulp growth over the past two quarters points to a destocking trend in the second quarter, pulp producers are likely to shift focus to North American and European markets where there are better prospects of passing on higher costs into paper and board prices. These markets may also experience some insulation to paper and board imports due to higher freight rates, providing a boost to domestic demand this year. Rising energy costs are increasingly likely to increase pulp and paper costs, while negatively impacting demand. The stage for the 2026 global pulp market has been set for another year of volatility and shifting demand trends between West and East. Regardless of the developments of the war in Iran over the coming weeks, we anticipate that supply-side conditions for market pulp will tighten considerably in 2026, potentially reaching over 3.1 million tonnes driven by a number of factors:

• The delay of the APP OKI mill expansion has resulted in a supply shock due to the loss of an expected 500,000 tonnes of BHK capacity from the market in 2026.
• Two of the largest global producers of BHK have announced plans to take downtime this year, with Suzano and APRIL taking about 120,000 tonnes and 150,000 tonnes per quarter respectively.
• Specialty pulp markets will pull a significant volume of capacity from paper grade BHK markets, including approximately 70,000 tonnes shifting to fluff pulp and 630,000 tonnes shifting to dissolving pulp.
• Market-related downtime, labor strikes and mechanical failures have continued to impact supply across all grades at pulp mills in Europe and North America, which we expect will remove at least 330,000 tonnes of supply from the market in the first half of 2026.
• Announced permanent capacity closures will trim 380,000 tonnes of capacity from NBSK markets and approximately 165,000 tonnes of capacity from fluff pulp markets this year.

NBSK and BEK net import price comparison, delivered to China

US dollar per tonne

Figure 5

The escalating war in the Middle East overshadows existing concerns about downstream overcapacity in China, the rapid increase in integrated pulp capacity and ongoing disruptions in Southeast Asian woodchip markets. With key cost inputs poised to rise due to the growing energy crisis, the pulp and paper industry is now staring at the prospect of lower global demand, higher costs and sustained margin compression. We view the environment to be high risk for further permanent capacity closures, especially if the crisis extends to the point that it significantly reduces demand. We will continue to update our forecast assumptions as the events unfold, relying on our integrated global team of journalists, engineers and analysts who provide comprehensive price and analytics coverage of the forest products commodity markets.

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