Pulp Industry Perspective
3rd Quarter 2015
Softwood prices fall in Q3
By Jesse Marzouk
Softwood and hardwood paper grade pulp prices continued to converge during the third 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 be-tween the two grades was driven by the large capacity of eucalyptus pulp, which competes with other hardwood grades, that was added to the market over the last few years in South America. By September 2015, the difference between the list prices narrowed to approximately $80 per tonne. NBSK list prices fell $20 per tonne to $960 per tonne during the third quarter, while NBHK list prices held steady at $880 per tonne. In terms of the spot market, there is essentially no price difference between NBSK and NBHK.
Two primary factors contributed to the closure of the price gap between NBHK and NBSK. First, global pulp inventories of hardwood grades were at extremely high levels during the middle of 2014; however, inventory levels were worked down since then. Secondly, paper producers were able to change the mix between softwood and hardwood to a certain extent. As hardwood pulp prices fell, producers began substituting softwood pulp for hardwood.
Hardwood pulp manufacturers aim to drive the price of pulp as high as possible before additional supply hits the market. South America-based Empreas CMPC S.A. recently started production at its new eucalyptus mill in Brazil, which is estimated to produce 1.3 million tonnes per year. The mill should begin to produce significant volumes over the coming months, which could once again lead to downward price pressure in hardwood pulp markets.
The strength of the U.S. dollar exemplifies another critical factor in the global pulp market. The significant amount of hardwood pulp (eucalyptus) brought online over the last few years was supplied from countries such as Brazil, which has experienced a dramatically weakened value of its currency. As a result, cash costs in U.S. dollars for South American producers have fallen. With Chinese demand for pulp slowing, imports into the U.S. from South America are likely to rise, which will drive down market prices for NBHK unless capacity is removed.
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.