Pulp and Paper Perspectives Q2 2018

Pulp prices continue unprecedented run

By Jesse Marzoukcontainerboard

Prices for softwood and hardwood paper-grade pulp continued their ascent during the second quarter of 2018. The North American list price for Northern Bleached Softwood Kraft (NBSK) in the U.S. increased from $1,260 to $1,330 per tonne during the quarter, while Northern Bleached Hardwood Kraft (NBHK) rose from $1,085 to $1,150 per tonne, bringing list prices up $340 per tonne for NBSK and $320 per tonne for NBHK since the beginning of 2017.  Moreover, price increases were announced in July and August by major producers.

In general, prices have been driven by strong demand from China, as well as limited supply resulting from maintenance downtime and delayed ramp-ups of greenfield pulp mills.

Strong demand in China has been spurred primarily by Chinese buyers implementing more stringent requirements (e.g., all mixed paper imports are prohibited) for the quality of recycled fiber utilized in their mills. As exporters struggle to meet strict conditions for recycled fiber, Chinese mills with the ability to utilize either recycled fiber or pulp have turned to the pulp market to satisfy their needs.

The pulp price increases have hit virgin tissue producers extremely hard.  The tissue industry, which has been dealing with some oversupply issues due to mills that were built over the last few years, relies heavily on outside purchased pulp. The combination of increasing costs for pulp and transportation, as well as the inability to raise prices because of overcapacity has resulted in declining margins for tissue producers.

It is difficult to forecast when the pulp market will turn.  One interesting development to watch is the threat of 25% tariffs from China on pulp imports from the U.S.  While there have been no formal announcements, a tariff on U.S. pulp likely would be implemented as a retaliatory measure if the U.S. announces another round of tariffs on Chinese goods. 

j_marzouk

Jesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumberrelated 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.