Pulp Industry Perspective
1st Quarter 2015
Pulp prices converge
By Jesse Marzouk
Softwood and hardwood paper grade pulp prices moved in opposite directions in the first quarter of 2015. At one point in 2014, list prices for Northern Bleached Hardwood Kraft (NBHK) pulp were $150 per tonne lower than that of Northern Bleached Softwood Kraft (NBSK). The divergence between the two grades was driven by the large capacity of eucalyptus pulp, which competes with other hardwood grades, that was added over the last few years in South America. In April 2015, the difference between the list prices narrowed to approximately $115 per tonne. NBSK list prices dropped from $1,020 per tonne in December 2014 to $980 per tonne in April 2015, while NBHK list prices increased from $835 to $865 over the same period.
The list price gap between the two grades closed for a few reasons. First, global pulp inventories of hardwood grades were at extremely high levels during the middle of 2014; inventory levels have been worked
down over the last six months. Secondly, paper producers are able to change the mix between softwood and hardwood to a certain extent. As hardwood pulp prices fell, producers began substituting hardwood pulp for softwood pulp.
Looking forward, hardwood pulp producers aim to drive the price of pulp as high as possible before additional supply hits the market in the summer. South America-based CMPC expects to start production at its new eucalyptus mill in Brazil in May 2015, which will have capacity to produce 1.3 million tonnes per year. The mill should begin to produce significant volumes over the summer, which could once again lead to downward price pressure in hardwood pulp markets.
Another factor to consider in the global pulp market is the strength of the U.S. dollar. As pulp prices are based on U.S. dollar transaction prices, a stronger U.S. dollar results in higher prices being paid in local currencies by paper producers globally. This has been especially true in European countries, as the euro has declined significantly against the U.S. dollar over the last nine months. U.S. dollar based pulp prices may come under pressure if non-integrated paper manufacturers in Europe have difficulty absorbing the prices increases that have resulted from a weakening euro.
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.