Sentiment was markedly lower during Shanghai Pulp Week 2025, standing in contrast to the bullish attitudes from a year prior. We focus on three main takeaways from our interactions with industry participants last week and conclude that a wait-and-see approach is likely to remain the dominant pattern in the short run.
Key takeaways:
- The US-Canada trade war looms large with global implications for pulp markets
- Chinese eucalyptus wood supply is here to stay
- Oversupply threatens to return to Chinese paper and board markets in the second quarter
US-Canada trade war and the impact on pulp
The US-Canada trade war risks boosting fiber costs for Canadian producers and increases the risk for additional capacity closures. The focus of the Trump administration on the lumber trade threatens to dampen demand for Canadian lumber, leading to tighter supply of residual wood chips that Canadian producers rely on to fiber their pulp mills.
Higher wood costs will therefore limit the downside potential for Canadian pulp prices in global markets, particularly northern bleached softwood kraft (NBSK) prices, which are already close to marginal costs. This casts doubt on the theory that a wave of Canadian pulp displaced from the US market could pull down prices in East Asian markets in the coming months.
Any European NBSK producers that were hoping to gain share in the US market at the expense of dominant Canadian suppliers (Canada accounted for 81% of NBSK imports in 2024), likely had their hopes dashed by the end of the week as pulp was included in the growing US trade dispute with the European Union.
US fluff pulp exporters are also facing the increased likelihood of pulp being targeted with retaliatory tariffs, with the EU and China being the largest markets. On the hardwood side of the market, Brazil and Uruguay are the largest importers in the US (85% and 11% import share in 2024, respectively); however, there was little confidence in the real opportunity to access the US market duty-free in the coming months after witnessing the treatment of the US closest partners.
Overall, considering the high dependence on imported pulp in the US, combined with the limitations of paper makers to rapidly change furnish shares, along with the expanding trade barriers being proposed, we view that changes to global pulp trade flows and import market shares will be relatively minimal in 2025.
Chinese eucalyptus wood boosting pulp capacity
The Chinese pulp & paper industry has witnessed vast investment in new capacity over the past four years, during a period that aligns with the dramatic decline in the property market that has seen new housing starts fall 67% since 2020.
China is home to nearly 6 million hectares of planted eucalyptus, which in the past was heavily utilized to serve property-adjacent end-use markets including veneer and plywood production, furniture, home furnishings, etc. Eucalyptus suppliers have been forced to look for new end markets in the wake of the collapse of the property market, which is not expected to return to growth in the long term due to China’s declining population trend and the current abundance of housing inventory.
Meanwhile, the Chinese pulp & paper industry has tapped into this newly available source of wood to help fuel a flurry of pulp line investments that will see wood pulp capacity doubling in 2025 compared with 2020, a growth of 19 million tonnes.
The investments have mostly been focused on integrated pulp lines, which have in turn pushed the integrated share of total BHK demand in China from 25% in 2020 to 35% in 2024.
Market pulp capacity has also expanded in China, further eroding demand growth for imported pulp. With prices for domestic eucalyptus wood being quoted below the cost of imported hardwood chips from Vietnam (the dominant overseas supplier), the sustained availability of domestic wood supply represents a potential dampening factor to the upward trajectory of market pulp capacity growth in South America.
With the pace of new investment in pulp lines in China continuing and the price of imported wood chips remaining relatively low and flat, we conclude that this source of wood is here to stay, while also recognizing that it is not infinite and that the pull from domestic pulp mills, along with major planned expansions in Indonesia, will contribute to tighter conditions in wood markets in the medium term.
Risk of oversupply in Chinese paper and pulp markets
Following the idling of 7 million tonnes of paper and board capacity by Shandong Chenming due to substantial overdue debts in late November, the Chinese paper and board market saw a stabilizing effect taking hold, as the abrupt announcement from Chenming provided a tightening of supply.
Looking forward to the second quarter, a major planned expansion by Nine Dragons threatens to reverse this tightening effect by adding 1.3 million tonnes of uncoated woodfree paper capacity and 1.2 million tonnes of virgin cartonboard capacity.
Meanwhile, Fastmarkets reported last week that Chenming has continued to restart some of its idled capacity, with a 380,000 tonne coated paper machine and a 350,000 tonne virgin cartonboard machine both restarting in mid-March and further adding to the downside risk for paper and board prices in the coming months.
This cloud loomed large over Pulp Week, as buyers shunned price announcements by major pulp producers for March business due to the growing prospect of softer end markets in the months ahead.
While upward momentum appeared to stall in Shanghai, risks are prevalent to both sides
For the time being, pulp buyers in the key Chinese market appear to be lobbying for stability in pulp prices as the volatility of trade disputes remains unknown.
On the downside, the increasing protectionist policies of the current US administration could stoke inflation in the US economy, keep rates high and stifle growth, with larger implications for global growth and underlaying demand for paper, board and pulp. Tariffs, along with proposed changes to port call fees for Chinese-made and -flagged vessels, could inject further instability to global supply chains.
Implications for currency markets and the competitiveness of major pulp-producing regions are also in play, with the euro and Real seeing an appreciating trend against the US dollar, while the Canadian dollar and yuan have remained weaker, helping to lower US dollar denominated production costs in Canada and China.
The foreign exchange implications for the competitiveness of major NBSK and bleached eucalyptus kraft (BEK) producers and new investment flows into these regions will likely hinge on the outcome of Trump’s trade policies in the quarters to come. Upside risk is also prevalent in today’s market, as producers have continued to whittle away at the excess inventory that built up in 2024.
Downtime and unexpected outages have contributed to lower inventories and increased negotiating power for producers in the past and carry extra weight as prices remain near cyclical lows. In the Chinese market, where the injection of new pulp & paper capacity is front and center, the possibility for new capacity curtailments from other indebted paper and board producers also remains an upside risk.
The Chinese government has also committed to significant stimulus measures that are aimed at supporting the property market and boosting consumer confidence, which could help support paper and board demand later this year and into 2026.
Want to find out more? At Fastmarkets we offer weekly and monthly monitors of the global pulp markets alongside price data, analysis and forecasting. Speak to one of our experts to find out more by submitting the form below.
