Pulp Industry Perspective 3rd Quarter 2014

Hardwood prices continue to decline

By Jesse Marzouk

Pulp Perspectives Graph Q3 2014North American paper-grade pulp prices continued on a similar path in the third quarter of 2014 as they were on in the second quarter. List prices for NBSK in North America stayed at $1,030 per tonne. Demand has remained relatively strong, and there have not been significant global capacity increases for softwood pulp grades. However, amid increased capacity from eucalyptus mills in South America, list prices for NBHK in the U.S. declined $35 per tonne, to $835. List prices for eucalyptus pulp, which can be used as a substitute for NBHK in certain applications, declined $30 per tonne, to $815.

Prices for hardwood grades continued to weaken during the quarter, as it is now clear that mills in South America producing eucalyptus pulp are looking for a permanent home for a significant amount of tonnage that has come online since 2012. The widely expected capacity surge has hit a number of bumps over the last few years, but now appears to be having a discernible effect on the North American pulp market.

Some analysts are calling for a bottom in hardwood pulp pricing recently, as there have been announced closures, including a hardwood pulp mill in Maine and a eucalyptus pulp mill in Spain. Industry data from the Pulp and Paper Products Council in August 2014, however, revealed that the worldwide pulp market remains oversupplied with hardwood pulp, totaling 46 days of supply. A balanced market typically maintains between 38 and 40 days of supply. While the announced closures will help with the oversupply situation, it is unlikely that they alone will bring price stabilization.

Recent U.S. dollar strength against the euro and the Brazilian real could result in more incentive for mills in those countries to produce, as the break-even level for production is pushed lower. Specifically for producers of eucalyptus pulp in Brazil, the collapse of the real against the U.S. dollar by 10% in September 2014 means the sales price in U.S. dollars producers would be willing to accept is lower than current levels. As a result, Hilco expects further declines in prices of hardwood pulp before stabilization ultimately occurs.

Jesse MarzoukJesse 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.