US pulp spot market prices slump $295 below all-time highs of 2022

Demand destruction has been blamed for the price erosion for all four key grades of pulp in March's spot market

US spot market pulp price erosion continued through March as a second biweekly survey closed down by $10-35/tonne across four key grades of pulp, leading the month to tumble a total of $35-80/tonne vs closing February levels, according to Fastmarkets’ PPI Pulp & Paper Week surveys.

Weakening demand for incremental tonnage and oversupply has led domestic spot prices down for eight straight months, and April is expected to decline once again, according to market participants.

Benchmark northern bleached softwood kraft (NBSK) pulp dropped to $810-840/tonne net delivered to the US East and Midwest, down $10/tonne, according to P&PW surveying through Mar. 30. The softer decline in the second half of March followed a bigger $25/tonne drop on Mar. 17 during the prior biweekly survey, so US NBSK spot prices tumbled $35/tonne month-over-month.

US NBSK final effective list prices closed March at $1,650/tonne, with lower spot prices, sluggish demand due to paper mill closures and curtailments, and broad pressure from buyers driving contract levels down $25/tonne, according to P&PW. That left the latest US NBSK spot market prices averaging 50% below the list – a delta that suggests spot prices remained below the net price of average contracts.

Spot NBSK down $210

Since NBSK spot levels peaked at $1,020-1,050/tonne net delivered last July during a time of mill and supply chain disruptions, prices declined an average $210/tonnne over eight months, according to P&PW research. Over the same period, US NBSK effective list prices tumbled from $1,805 to $1,650, down a combined $155/tonne.

US southern bleached softwood kraft (SBSK) spot market prices eroded more than its northern counterpart, dropping $20/tonne to $770-800/tonne net delivered through Mar. 30, according to the P&PW surveying. Mills in the US South pivoted to SBSK production in a bid to protect their more coveted fluff pulp markets, resulting in more spot SBSK availability, according to market participants.

Contract markets are ‘tough’

Price volatility globally, overflowing mill inventories in both bleached softwood kraft (BSK) and bleached hardwood kraft (BHK), and sporadically plummeting non-contract prices have made garnering US effective list prices a difficult task, sources have noted throughout this year.

List prices are tough right now, given the weakness of spot markets and (the fact producers) have a lot of volume to sell.

Producer contact

“So they have to entice paper mills and I know paper mills are curtailing [production], especially in printing and writing paper,” the contact added.

In downwards pricing cycles, US spot prices are typically lower than contracts, while in upwards periods, the non-contract levels soar above the net prices for contract tonnes. At the same time, whenever the delta between spot and effective list prices surge above typical contracts, buyers invariably demand contract price decreases – and nearly always receive them.

“Demand simply not there.”

Indeed, several buyer sources said the wide price disparity between contracts and spot markets would help them easily drive down contract prices in April. Others weren’t especially concerned about landing cheap spot market deals because their end paper demand is so weak, they reduced open market purchase volumes on contracts.

“Even the increased availability and reduced pricing of today’s spot market is not enough to drive new pulp orders, as demand for finished products is simply not there,” a North American buyer contact recently said.

NBHK-BEK battle drops prices $295

Domestic spot markets have eroded more sharply in BHK grades than BSK, tumbling a whopping $295/tonne from the all-time highs recorded in July 2022 after March closed with yet another sharp decline.

US BHK markets are more imbalanced than softwood, and supplies remain high during a time of weak demand, leading US BHK spot market prices tumbling to $720-760/tonne net delivered at the end of March, according to contacts and the P&PW survey results. That was down $35/tonne vs the already hefty $45 decline recorded on Mar. 17, according to P&PW surveys.

Demand shifts from high prices?

“On the printing and writing (paper) side… for sure people are slowing down. For me, paper prices went to record highs, so many customers have other options now,” said an industry contact, who believed last year’s spectacular pricing run in pulp and paper markets drove some out of the market, resulting in demand shifts that won’t likely change.

It led to permanent demand destruction. They are living with consequences of that and that is why the market is falling.

US BHK final March effective list prices declined $50 to $1,475/tonne, according to P&PW. That left US BHK spot prices averaging about 50% below the March list. Amid new capacity from Latin America – Bracell and Arauco started up new lines in Brazil and Chile, respectively, and UPM has one in Uruguay starting in a few weeks – and a price collapse in the key market of China, BHK markets are seen as the weakest in the US.

Downwards pressure has accelerated in part because imported bleached eucalyptus kraft (BEK) has come at low prices. Latin American producers over the past few months have competed with incumbent North American producers for fresh deals. Some Latin American BEK producers, which previously watched northern bleached hardwood kraft (NBHK) spot prices for signs of where to make their own offers, began undercutting NBHK producers in non-contract markets, according to domestic market participants.

The increased competition led US BHK spot markets to tumble – a movement that sources believe probably won’t cease this month.

Interested in finding out more about the pulp market? Take a look at our forecasts for major grades in the forest products industry and subscribe to our news and market analysis.

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