Pulp Industry Perspective 4th Quarter 2015
Softwood prices fall again in Q4
By Jesse Marzouk
Softwood and hardwood paper grade pulp prices continued to converge during the fourth 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 to the market over the last few years in South America. By December 2015, the difference between the list prices narrowed to approximately $60 per tonne. NBSK list prices fell $20 per tonne to $940 per tonne during the fourth 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 soft-wood pulp for hardwood.
Looking forward to 2016, the prices for both hardwood and softwood grades could decline. China accounts for roughly 25% of demand for market pulp globally. As its economy slows, the demand for pulp may decline in 2016 compared to 2015. Furthermore, the Chinese government has declared its intention to improve the environmental issues that plague the country, including a lack of clean water and air pollution. This means reducing its reliance on heavy industry such as paper production. Paper manufacturing re-quires a significant amount of water and other resources. In addition, the recent devaluation of the Chinese Yuan will place further pressure on prices of almost all goods with U.S. dollar market prices. As the Chinese currency weakens, the ability of Chinese domestic producers to pay the same price in U.S. dollars becomes more difficult. With estimates of further depreciation of the yuan pegged at 15% to 20% over the next few years, it will be difficult for market pulp prices to rise in this environment.
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.