Pulp and Paper Industry Perspective 3rd Quarter 2016

Pulp Market Oversupplied

By Jesse Marzouk

North American softwood and hard-wood pulp prices declined slightly in the third quarter of 2016 due to high supply levels. Northern bleached softwood kraft (NBSK) list prices decreased $5 per tonne, from $1,000 to $995, while northern bleached hardwood kraft (NBHK) declined $15 per tonne, from $850 to $835. At the end of August 2016, markets remain in an oversupply situation, with worldwide inventory levels approximating 32 days’ supply for softwood and 45 days’ supply for hardwood, both of which are considered above-normal. Prices of fluff pulp, which is primarily utilized for personal care items, such as diapers and in-continence products, remained constant at $1,010 per tonne.

Worldwide demand for pa-per grade pulp has been strong, with annual increases averaging 2.5% over the last five years.

Demand mostly has been driven by emerging market growth for tissue products. Pulp prices might come under further pres-sure during the remainder of 2016 and into 2017, however, as additional capacity outstrips the growth in demand.

Over the last few years, capacity growth for hardwood pulp has been a major concern, with a number of large eucalyptus mills starting up in South America. While concern on the hardwood side persists, unease also has developed with soft-wood pulp as mill startups in 2016 begin to reach full capacity.

Operators such as Klabin in Ortigueira, Brazil (400,000-tonne capacity) International Paper Company in Riegelwood, North Carolina (365,000-tonne capacity); Domtar Corporation in Ashdown, Arkansas (516,000-tonne capacity); and Sodra in Varo, Sweden (275,000 tonnes increase) are among the mills that started up or added capacity in 2016. The former three mills have the potential to produce both softwood and fluff pulp. The ability and willingness of these mills to switch between softwood and fluff pulp could determine how much prices of these types fluctuate.

j_marzouk

 Jesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.