Since his inauguration in January, President Trump has enacted several rounds of tariffs on US trade partners. These included tariffs on the two biggest markets for US-based fluff pulp producers, the EU and China.
Trade negotiations are underway with both parties but what would high tariffs and uncertainty of future tariff rates mean for the sale of fluff pulp produced in the US in these markets?
The US has around 75% of the global fluff pulp capacity. The top three producers of fluff — International Paper (IP), Georgia-Pacific (GP) and Domtar — are in the US. Fastmarkets estimates that the US exports over 4 million tonnes of fluff pulp every year. Within that, roughly 1.5 million tonnes goes to the EU and China.
Retaliation from these countries to high US tariffs could cause demand destruction for US fluff in these markets.
Imports from the EU are currently subject to a 10% tariff, after announced additional levies of 20% were suspended for 90 days on April 9. The EU, in return, paused retaliatory tariffs on $23 billion worth of US goods.
The EU had provided an exemption for fluff pulp imports when it was initially preparing to impose retaliatory tariffs. The Trump administration has recently talked about imposing 50% tariffs on the bloc. This tariff was going to commence on June 1 but then it was moved to July 9, and a trade deal is in the works.
If trade negotiations fail, the EU plans on imposing tariffs on $107 billion worth of US goods. It will also initiate a trade dispute at the World Trade Organization (WTO). The future of trade relations, and whether fluff pulp will enjoy an exemption to any tariffs, are currently not clear.
Where are the main fluff producers outside the US?
High tariffs on fluff pulp produced in the US could incentivize buyers to look for alternatives.
The two major suppliers of fluff pulp in Europe, Stora Enso and UPM, have about 515,000 tonnes of combined capacity. This covers less than 50% of European demand.
Ence is set to start operations at its 125,000-tonne hardwood fluff pulp mill in Spain in Q4 of this year. But if high tariffs on US-produced fluff are imposed by the EU, there will likely be other attempts to increase fluff capacity in the region as well.
A possible candidate for expansion would be the 125,000 tonnes of northern bleached softwood kraft (NBSK) capacity at Stora Enso’s Skutskär mill. This capacity could be converted to produce fluff.
In 2024, Fibre Excellence announced an investment of €150 million at its Provence mill in France for fluff production. The start-up was estimated in 2027; trade policy could potentially accelerate this investment.
Additionally, as Latin American fluff producers expand production, European end-users could also increase their purchases from that region.
China and the US reached a temporary truce on May 12, reducing the tariffs on each other for 90 days. The US decreased its tariffs on Chinese imports from 145% to 30%. China reciprocated by reducing its retaliatory tariffs from 125% to 10%.
When the Chinese increased tariffs to 125% in April, we saw the volume of fluff pulp transactions decrease. So, the current substantial reduction in tariffs could provide some momentum for purchases in the short term. However, like what is happening with the EU, the status of these tariffs beyond the 90-day reprieve is uncertain.
The state of the fluff pulp market
In the last few years, when fluff pulp prices had skyrocketed, we have seen Chinese buyers turning away from imported fluff and toward domestic variants. Several producers in China switched to producing fluff from acacia, bamboo, baled bleached softwood kraft (BSK) etc., and the demand for imported fluff decreased.
China had limited fluff pulp capacity before 2020 but now has an estimated 4% of global supply. A key producer, Yunnan Yunjing Forestry & Paper, recently expanded its fluff production capacity to 200,000 tonnes per year.
Shandong Huatai started operations at a 700,000-tonne pulp mill that is capable of producing bleached hardwood kraft (BHK), BSK and fluff pulp. Since the trade war between the US and China began, we have heard of several potential investments in China for fluff.
Our preliminary estimates show that fluff pulp capacity could increase to around 850,000 tonnes in China by 2030.
Another channel through which tariffs can affect fluff pulp demand in China, for both imported and domestic grades, is the export of hygiene products. China exported around $3.6 billion worth of hygiene products in 2024 (HS Code 9619) with around 16% of that exported to the US.
Even though the tariffs on Chinese imports have been reduced to 30%, they are still elevated. A decrease in demand for Chinese hygiene exports will lower demand for the raw materials, including fluff pulp.
The consumption of fluff pulp within China has also come down since the pandemic due to demographics and an exponential decline in baby population. But as adult incontinence products gain popularity, we will see some of this slowdown reverse over time.
The impact of tariffs on Latin America
In Brazil, Suzano is starting its 340,000-tonne hardwood fluff line in the fourth quarter of this year. Klabin has a potential 650,000-850,000-tonne fluff project in its pipeline, and tariffs on US pulp could incentivize the company to bring this forward.
High tariffs on US fluff would provide Latin American producers an opportunity to cater to the market previously served by US producers. Meanwhile, in the US, IP, the long-standing top fluff producer, shut down its Georgetown mill last year and is looking to divest its Global Cellulose Fibers (GCF) business.
The large share of global fluff capacity in the US means that building capacity in other parts of the world to replace US supply would not be easy or possibly even feasible. Hence, there will always be demand for the prime grade of fluff pulp made in the US.
But this demand will decrease over the medium-to-long term if the EU and China start replacing it with domestic production. Unless some form of exemption is provided for fluff pulp, elevated tariffs, even if they are not as high as 125%, could still shrink demand for US fluff pulp in China and lead to mill closures in the US.
And if the EU imposes retaliatory tariffs on US fluff, that will further exacerbate the situation.
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