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When can pulp prices be expected to subside?

Espresso-live Speakers
by Surabhi Chakravorty , Senior Research Analyst, Paper Packaging
21 October 2022
pulp


Wood pulp is a major raw material used for virgin paper-based packaging. Hence, price movements in the pulp market have a major impact on the prices of tissues, paper, carton board, and containerboard. The pulp market has been witnessing an unprecedented surge in prices due to gaps in supply and demand at the global level. Some of the major factors that have impacted the prices include logistics challenges, high freight costs, low operational rates at mills, and high demand. However, the market outlook is expected to change with an anticipated decline in wood pulp prices. This study provides insights into future pulp prices in the global market.

Factors Impacting Pulp Prices:

The prices started to mount in the early months of 2022, mainly because of truckers’ protests in Canada and the spread of the omicron variant of COVID-19. Owing to these factors, pulp producers witnessed a shortage of labor and drivers for the shipment of pulp from their mills to buyers. These events triggered supply shortages across the global market. The supply availability in contract, spot, and resale markets had reduced, which helped pulp producers implement large-scale monthly price hikes of about $100/tonne during the summer of 2022. This was further accompanied by high demand across end-user industries. Thus, buyers had to accept the price hikes and did not resist the price hike situation. Earlier, the increase in pulp prices had also helped buyers to implement hikes for their end-products, since it supported their attempts at price hikes. However, as the pulp prices increased further, it became unsustainable for buyers, as high input costs impacted their profit margins. The major factors impacting pulp prices are

  • Container shortages for shipment – There have been shortages of containers for pulp shipment in many regions, especially in Latin and Central America. The shortage of containers for pulp shipment is likely to persist through Q1 2023 in Latin and Central America, as many containers are lying idle in North America. Thus, container and shipment rates are especially high for import-dependent countries that are impacted by high container rates. Thus, global buyers faced long shipment delays. Asian buyers were unable to procure their shipments in due time, which led to inventory shortages and high demand in the past months of 2022 (first half of 2022). However, the impact of container shortages is expected to have a lesser impact on pulp prices in the coming 2–3 months, as pulp prices are expected to decline in the region as the demand is expected to decline in the global market along with strong resistance from buyers against high pulp prices

  • High freight costs – Most major pulp suppliers had been struggling with high road freight costs. Road freight costs had increased owing to a lack of truckers and drivers for road and train transportation. The shipments to the buyer locations had become expensive for the producers, and hence, suppliers had pushed for price hikes. In addition, because the inventory levels at the producers’ end were low, producers pushed for high prices for buyers who were willing to pay premium prices to secure their order requests.

  • Armed conflict between Russia and Ukraine – The conflict in Ukraine did not have much impact on the pulp market. However, due to sanctions on Russia, the shipments of wood and pulp from Russia to European countries were restricted, thereby adding pressure to other hardwood pulp suppliers in the already tight supply European market. In addition, the demand for eucalyptus pulp (BEK) had increased since it was sourced as an alternative to Russian-sourced birch. These combined factors had led to a further surge in prices in Europe. However, in the coming months, fluctuating energy prices are expected to impact pulp production and costs, as sanctions have led to an increase in energy prices, thereby impacting the operations for pulp production. With Russia planning to increase energy prices in Europe, the prices of pulp and paper are expected to be affected as well. The prices and production of pulp, paper, and board are expected to be affected by rising energy prices in the coming months; therefore, some suppliers are charging energy charges over the standard RISI prices.

  • Lockdown in China – With China being the major buyer location for the wood pulp market, any disruption in the Chinese market will have a ripple effect on the global (especially North American) pulp market. Since many regions in China have been under lockdown restrictions due to their Zero-COVID Policy, the shipment of pulp from ports to mills and buyers has been disrupted, leading to a supply shortage situation. However, since August 2022, the demand for wood pulp has started to decline because the demand for paper and board has reduced owing to lockdown restrictions. Thus, the pressure from Asian buyers to reduce prices is expected to increase. With a dip in shipment to China, the supply in other regions is expected to increase, which will also lead to price drop conditions in other regions.

Pulp Price Dynamics:

Region Expected Price Outlook Next 3 months Price Outlook Next 4-6 months Price Outlook
US
  • Softwood pulp prices are expected to witness drop in prices in the coming months. With the declining prices and increased availability in the spot market, the resistance from buyers is expected to increase. However, the price declines are expected to be very gradual (no sharp price declines are expected) for the coming 2–3 months because the cost of operations for pulp producers remain higher than usual. The rate of price decline will depend on the hawkishness of buyers to push for price drop by risking supply certainty and on suppliers’ inventory levels because if the suppliers are sold out, it will be less likely that they will move their available tonnage in the declining contract or spot market.

Decrease Decrease
Europe
  • The prices for softwood pulp are expected to remain stable and then decline in next 2–3 months. The suppliers are expected to remain bullish as the supply-side challenges are expected to last for at least the coming 1–2 months. Thus, despite the slight softening of demand in the coming months, the prices are expected to remain steady. However, as the demand reduces further, the rate of price decline is expected to be lesser than that of other regions.

  • Though the prices of softwood and hardwood pulp are expected to decrease in the 2–3 months, the rate of price decline for both the grades in Europe is expected to be lesser than other regions, since pulp production is expected to be impacted by high wood and energy costs during the period. With the expected energy crisis in Europe due to reduced energy supply from Russia (to European countries) during the period from the end of 2022 to early 2023, the production cost is expected to be volatile for not only pulp but also end-user industries, including paper. This will also impact the demand from end-user industries during the period.

Stable and then Decrease Decrease
APAC
  • Softwood pulp prices are expected to decrease, as many producers have slated prices for softwood pulp in China, which will lead to an expected increase in demand and orders from the domestic buyers. Pressure from buyers on price reductions is expected to continue, as the demand is expected to remain lower than the season average (though higher than previous month but lower generally) and lead to a price decline situation throughout the period.

  • The pressure from buyers is expected to remain high leading to a downward price trend. Furthermore, the supply and availability is also expected to increase as the shipments from offshore regions is expected to reach China by the early months of 2023 (mostly by January 2023).

Decrease Decrease
LATAM
  • The prices for hardwood pulp are expected to remain stable for 1–2 months and then witness price decline. The supply levels in the domestic as well as offshore markets for the Latin American suppliers are expected to remain low. Also, the challenges around container rates and logistics delays are expected to continue, which will also prompt stable prices for the coming months. The demand is also expected to remain steady in September (since September is a period of high seasonal demand).

  • Though the challenges around logistics and container shortages for shipments are expected to continue, the push from buyers is expected to be stronger. Thus, a gradual rate of price drop is expected in the region.

Stable and then Decrease Decrease

pulp prices

Conclusion:

Thus, pulp prices are expected to decline globally. Prices for softwood pulp are expected to witness a decline in September in North America and Asia, as the pressure from buyers is expected to increase. In addition, prices are expected to decrease with the expected increase in supply levels. However, prices are expected to remain stable for another month in Europe and Latin America, as the demand is expected to remain steady.

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