Spiking China pulp futures spurs moves for BSK hikes, around $100 per tonne

Constant shipping delays disrupt Chinese pulp market supply

Pulp sheets

A surge in futures prices in China from mid-November on the back of supply disruptions stemming from constant shipping delays for imports has rattled the Chinese pulp market.

Suppliers are now looking at implementing hikes of around $100 per tonne for bleached softwood kraft (BSK) pulp imports there.

Market participants are taken aback by the futures spike.

After a recent low of RMB 4,890 per tonne on November 17, prices for the most popular January 2022 futures contract (sp 2201) on the Shanghai futures exchange climbed all the way to RMB 6,070 per tonne on Thursday - a whopping increase of RMB 1,180 per tonne ($186 per tonne).

The Thursday level is equivalent to $831 per tonne after deducting 13% VAT and RMB 120 per tonne logistics costs.

That is a sharp rebound so soon after BSK futures tumbled in October and forced suppliers to slash prices for BSK imports by as much as $110 per tonne.

The mid-point for northern BSK (NBSK) Fastmarkets PPI Asia assessed plunged nearly $100 per tonne, from $790 per tonne in October to $696 per tonne in November.

Meanwhile, mills stocked up on resale pulp to cover production needs when downtime mandated by the Chinese government to curb energy consumption began to ease in late October.

In the belief that prices had hit bottom, Chinese traders snapped up BSK volumes at around $700 per tonne.

Then came the floods caused by storms in the Canadian province of British Columbia, exacerbating the existing NBSK supply disruptions tied to shipping bottlenecks.

Making matters worse, since the end of last month, Chinese authorities have restricted the pick-up of cargoes in Manzhouli and Erenhot, the two main destinations in Inner Mongolia for pulp imports from Russia via railway, after Covid-19 infections were diagnosed there.

The worsening supply situation has apparently spurred the BSK futures spike and prompted investors to jump on the bandwagon, seeking tonnage.

Suppliers to seek BSK increases despite possible resistance

Contacts reported that futures customers have paid up to $820 per tonne for Canadian NBSK.

However, most sellers have refrained from moving tonnage, apparently waiting for announcements regarding prices from big-volume BSK suppliers, notably the Ilim Group and Arauco, which are expected next week.

Prices for NBSK assessed this week do not include high-priced deals for futures, as volumes have been small.

And so NBSK levels are steady from last week, with both Canadian and Nordic NBSK standing at $700-740 per tonne and the mid-point at $720 per tonne.

The two grades had seen rises last week from $690-710 per tonne and $680-705 per tonne respectively a fortnight ago, when the mid-point was $696 per tonne.

Radiata pine has edged up $10 per tonne over the past two weeks, clocking in at $690-720 per tonne.

Russian BSK stayed flat at $670-690 per tonne.

Supplier contacts told PPI Asia that sellers aim to seek BSK increases of around $100 per tonne, despite being aware that major Chinese end-users are likely to put up resistance and that the uptick could be short-lived.

“China’s paper and board demand remains weak. It is difficult for manufacturers to pass additional pulp costs on to downstream customers,” said a supplier.

“But this is an opportunity falling into sellers’ laps, and everyone will take it.

“I have told long-term clients to brace themselves for a big BSK hike. In response, customers who couldn’t afford it said they will continue to run machines until pulp stocks are used up, or will switch production to packaging grades such as recycled fluting.”

Speculation could be behind the surge

A major trader indicated that the BSK futures surge has been fueled by speculation, rather than by improving fundamentals, and may not be sustainable going forward.

“We heard that suppliers cut volumes even after orders were confirmed; that they postponed delivery dates, and that they cancelled orders that had been confirmed, when prices were lower, especially for futures investors.

“Suppliers have taken advantage of a temporary supply-side shock to raise prices in China, aiming to alleviate downward price pressure in North America, Europe and elsewhere in the world.”

BHK levels are up

Major South American producers Suzano, Bracell, Eldorado and CMPC announced a $20 per tonne rise for bleached hardwood kraft (BHK) pulp, effective this month.

“In just one day, our entire allotment was sold out,” said a Brazilian supplier.

The successful implementation of the hike has taken South American BHK to $550-570 per tonne, up $10-20 per tonne.

“The tonnage we have sold is scheduled for shipment in February, with arrival in China expected in April, said the supplier contact.

“Such arrangements for late deliveries have been made due to the international shipping crunch.”

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Want to know more about China pulp futures?
We are on track to reach twenty-times the size of the physical pulp market now on the SHFE alone. Matt Graves, SVP, Fastmarkets
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