Pulp Industry Perspective 2nd Quarter 2014

Softwood and Hardwood Diverge

By Jesse Marzouk

Pulp Perspectives Graph Q2 2014North American paper grade pulp prices began to diverge in the second quarter of 2014. Prices for NBHK in the U.S. declined $5 per tonne to $870. List prices for Eucalyptus pulp, which can be used as a substitute for NBHK in certain applications, declined a larger $25 per ton, however, to $845. This could be the beginning of a long awaited divergence between hardwood grades and softwood grades. NBSK list prices in North America remained at $1,030 per ton, even with some weakness being experienced in China, the largest world import market.

Prices for hardwood grades began 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 discernable effect on the North American pulp market.

Industry data from the Pulp and Paper Products Council (PPPC) for May revealed that the worldwide pulp market remains oversupplied with hardwood pulp, which totaled 48 days of supply. A balanced market typically maintains between 38 and 40 days of supply. Softwood supplies on the other hand remain undersupplied or at worst balanced, with 26 days of supply. A balanced market for softwood is typically considered to be between 28 and 30 days of supply. The difference of 22 days of supply between hardwood and softwood is the largest number ever recorded since the PPPC began collecting data

Purchasers of hardwood pulp, such as tissue and paper manufacturers, are looking to move prices down more significantly than the recent small declines in NBHK. It appears that they will have the ability to do so in the coming months as NBHK producers will still need to keep their mills running at capacity and supplies are running too high.

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.