MethodologyContact usLogin
With market pulp prices poised to fall from record highs, the keenness for deliberation was palpable for those that attended London Pulp Week in November. Fastmarkets’ senior economist, Patrick Cavanagh, shares a summary of the major themes that emerged from discussions with over 40 pulp and paper market participants.
The availability of pulp imports has increased markedly in recent months, allowing for an accumulation of some buy-side inventory for the first time since mid-2020.
Pulp exports from Brazil and the US have touched record highs in recent months, while Finnish softwood pulp exports also have improved significantly.
Easing ocean logistics are a key driver of the uptrend in imports, with port congestion and tight vessel and container availability having improved as the global demand for goods has cooled off. Supply chains that were stretched over the past two years are now condensing, resulting in increased availability of pulp.
Freight rates, particularly container rates, have declined considerably over the past year. This has boosted export opportunities for East Asian paper and board producers hoping to access the US and European markets, which have realized much stronger pricing gains over the past two years. In turn, increased import volumes of finished paper and board will likely cool demand for pulp consumption in the US and Europe.
The demand for pulp is waning, with both seasonal and cyclical factors weighing on global consumption of paper and board.
Demand in the key Chinese market continues to be hampered by outbreaks of Covid-19 and strict official policies along with blunt lockdowns, while rampant inflation and aggressive interest-rate hikes are threatening recession in the US and European economies.
The shift in consumer spending away from goods and toward services in the US, as well as expectations of weaker spending during the end-of-year holidays, has motivated major retailers to hold off on new orders and to focus on destocking.
In Europe, the energy crisis continues to force several industries to take downtime, with those outages now flowing through to drive lower demand for paper and board.
Three large-scale market pulp capacity expansion projects will be ramping up in 2023, which will push supply growth ahead of demand and loosen market conditions. Namely, these are:
Changes to how China responds to Covid-19 outbreaks could lead to increased consumer confidence and higher domestic paper and board demand, while strong export opportunities should also support market pulp consumption.
As inflation continues to weigh on real wages, the risk for organized labor disruptions is elevated. With respect to the pulp market, this could lead to less availability either directly due to strikes at pulp mills, or indirectly through labor disruptions at ports and railways. Both could once again hamper the flow of pulp to the global markets.
Production cost inflation for pulp producers also remains relevant, as producers face margin pressure despite the record high pricing environment in 2022.
The war in Ukraine is a major driver for cost inflation in Europe, due to volatile energy rates having carried into significantly higher chemical costs and increasing demand for wood pellets. This higher bioenergy demand has rapidly driven up wood costs for European pulp producers, with more risk present from potential further curtailments of Russian gas supply to Europe and the prospect of a cold winter.
In British Columbia, wood costs and availability are under pressure from both long- and short-term stressors that have ignited a new wave of pulp capacity downtime and that highlight the risk of permanent closures in this key softwood pulp region.
Production cost inflation has the potential to continue moving higher in 2023, even as market conditions loosen, which could result in a significantly higher price floor compared with the trough witnessed in 2020.
Want to learn more? Take a look at Patrick Cavanagh’s global wood pulp market outlook and in-depth analysis on the impact of Russia’s war in Ukraine on global pulp markets. Speak to our team to discover our forecasts and market monitors to keep you up-to-date on the latest market trends and help your business plan ahead.