North American pulp markets opened the year with continued downwards pricing pressure, as weak paper markets collided with a return to normal supply chain flows that brought fresh inventory at a time when markets didn’t need it. But pulp mill downtime and a permanent closure in British Columbia could temper downwards pressure in softwood kraft, industry contacts said.
Benchmark northern bleached softwood kraft (NBSK) preliminary effective list prices were mixed, with levels ranging from $1,700-1,720/tonne, flat to down $20/tonne, market participants told Fastmarkets’ PPI Pulp & Paper Week. Southern bleached softwood kraft (SBSK) saw broader erosion, with the SBSK preliminary list dipping $10-30/tonne to $1,665-1,685/tonne.
This month’s price erosion echoed a theme of declines that occurred throughout the second half of 2022 – after global supply chains recovered from a railroad, trucking, and vessel logjam in the year’s first half. Many US printing and writing, specialty, and industrial papermakers took downtime over the end-of-year holidays, and porous demand in the New Year led to little need for spot market tonnage.
US SBSK prices last year were on par with NBSK during some months, scrambling the typical differentials between softwood grades. Historically, SBSK has priced at a $20-40/tonne delta to NBSK. The differentials are starting to normalize now, according to buyer and seller contacts.
“Some mills were trying to make a weird dynamic and make more fluff,” said an SBSK buyer, who noted a swing from SBSK to fluff pulp isn’t as pronounced as it was in 2022 because producers are now trying to protect their fluff prices by making more SBSK.
“Fluff prices are real high (but) in the past month … we are seeing that start to normalize. SBSK prices were as high as NBSK at one point last year. We are in process of normalizing the standard differential between two products,” the SBSK buyer said.
Across key softwood and hardwood kraft grades, US spot market prices were down $25-35/tonne compared to mid-December levels. Dec. 16 was the last official P&PW spot market survey.
The big thing that surprised people is how fast the downstream market deteriorated.
“North America, Europe, everywhere saw a very abrupt adjustment. And I think that’s the big issue facing everyone. We saw paper orders disappear overnight. Eight-week order backlogs went to order cancellations,” said an industry contact whose view was typical.
American papermakers had warned of seasonal downtime becoming market-related downtime over the holidays, which they expected would crimp demand for market pulp this month. That’s exactly what happened, but while spot prices downshifted, NBSK producers are now trying to stave off further price erosion because less output is expected with the permanent closure of a Canfor Pulp mill by the end of March.
Following extensive analysis of its operating footprint and the long-term supply of economic residual fiber, Canfor Pulp announced it would permanently close the 280,000 tonnes/yr market pulp line at its Prince George Pulp and Paper Mill in British Columbia. Over the next few months, it will be following an orderly wind down process. The pulp line is expected to close by the end of the first quarter of 2023 and is anticipated to impact about 300 positions across the organization by the end of the year, Canfor Pulp added.
“In recent years, several sawmills have permanently closed in the Prince George region due to reductions in the allowable annual cut and challenges accessing cost-competitive fiber,” said Canfor Pulp pres/CEO Kevin Edgson in a release.
“This has had a material impact on the availability of residual fiber for our pulp facilities and we need to right-size our operating platform. As a result, we have made the very difficult decision to shut down the pulp line at Prince George Pulp and Paper Mill and will continue to operate the Specialty Paper facility,” Edgson said.
Most of the closure’s impact is on NBSK, a roughly 18 million tonnes/yr capacity market worldwide in 2022. The Prince George line’s closure is equivalent to about 1.5% of global NBSK capacity, according to a Fastmarkets RISI estimate. While most of the impact is on NBSK, it will also impact unbleached softwood kraft (UKP), sources told P&PW.
Prince George is one of several Canadian mills that pivoted some output to UKP in recent years. Industry sources said Canfor Pulp’s other BC mills would switch out some NBSK production to fill the gap left by Prince George’s closure, which is expected by the end of February.
A source at an NBSK competitor said that Canfor Pulp’s closure combined with stable NBSK prices in China would help him shore up domestic NBSK levels, and perhaps fight off further price erosion.
“We tried to hold prices flat and then with (the) Canfor announcement, that will help as well to solidify prices,” said the NBSK producer contact. “There will be total of 280,000 tonnes of NBSK removed (per year) from the market. Intercon will pick up UKP production there because they have contracts with some customers and have to serve that sector UKP.”
Although Canfor Pulp didn’t confirm the swing at Intercon, several pulp market participants confirmed to P&PW the Canfor/Intercon move. Intercon is a 335,000 tonnes/yr market NBSK mill that’s also in Prince George, BC. Fastmarkets’ Mill Asset Database lists the capacity as exclusively market NBSK.
In US BHK markets, preliminary contract prices declined unevenly, while spot prices toppled downward by $30-40/tonne. US bleached eucalyptus kraft (BEK) ranged from $1,580-1,600/tonne, down $5-25/tonne, while North American-produced BHK shot down $15-25 to $1,570-1,580/tonne, according to P&PW.
Contract net prices have generally gone down with the start of new 2023 contracts, but discount escalation is broad, with discounts year-over-year changing 0-4%, according to a survey of buyers and sellers over the past two months. Still, even though some buyers received fresh discounts, there are price decreases on top of those, several contacts said.
“People are fighting on prices,” said a market participant regarding BEK and NBHK markets.
There’s less of a battle on contracts because average discounts went up, but prices are down nonetheless, the source added.
“Hardwood business is really sloppy. One BEK supplier doesn’t have contracts and shipped a lot to North America. Usually there’s not a lot of spot (BEK) but some bigger guys this year kept a few tonnes open because there’s more capacity,” the contact said.