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North American pulp markets encountered the year’s first month of price decreases in August after the industry navigated through better seasonal demand than usual through summer. Sharp price erosion offshore, surging global producer inventories, and a soft but ongoing decline in US spot market prices led to big global spreads that forced a broad decline domestically in North America.
After a strike at Canada’s major railways ended on Monday, Aug. 26 with its government forcing rail companies and a union into binding arbitration, it removed a months-long period of supply uncertainty that had kept US buyers from pushing aggressively for price decreases on Canadian shipments.
In addition, a collapse across Asia in bleached eucalyptus kraft (BEK) markets sharpened downwards pressure in the US, prompting a major producer late this week to drop its September price in North America and Europe by $100/tonne, industry contacts told Fastmarkets’ PPI Pulp & Paper Week (P&PW). The $100/tonne decline in BEK contract prices is “not public,” sources said, but it will likely cause downwards pressure next month across paper grade market pulp in the US and Canada.
“There are a lot of new players, and they want to get established in new positions. They are becoming aggressive,” said a BEK buyer contact regarding contract volumes as well as new spot offers.
“They had nothing in the first half of this year,” the contact continued. “North America was No. 3. Now they’re looking at the calendar and they realize if they want to get qualified, they’ll want to do it now. We have been paying a high price for pulp.”
By No. 3, the source referred to North America as a third-choice market for Latin American BEK producers that ship larger volumes to Asia and Europe, where prices are done on a CIF basis and logistics costs are lower. During the first half of 2024, when demand was strong and prices rose nearly every month, the US saw little to no BEK volume in spot markets. Now, with a Chinese “buyers strike” continuing and prices collapsing in Europe, North American buyers are finally receiving pricing relief.
US BEK effective list prices declined to $1,520/tonne, down $35/tonne according to P&PW’s final August survey. The decline occurred as some producers mixed contract volumes at “flat prices” and added spot tonnes to orders with the same buyers at significantly lower prices. In some cases, the so-called spot volumes represented thousands of tonnes, dragging down the average price on contract volumes, sources told P&PW. Such methods lead effective list prices to decline.
Meanwhile, North American-produced BHK (bleached hardwood kraft) declined $30/tonne to $1,470/tonne. North American produced BHK saw less price erosion and US spot market levels dipped just $5/tonne in P&PW surveying through Aug. 29. That came after a $10/tonne decline at mid-month. Downwards pressure is expected to rise in September, though, after the BEK producer dropped September US prices and Asian BHK prices collapsed as much as $120/tonne in August across grades including Canadian-produced northern bleached hardwood kraft (NBHK).
“You can’t keep North American prices in the high $700s when you’re selling at $580 in China. I will continue to pressure producers to drop contract prices to come in line with spot,” said the buyer source. “In eucalyptus, they all want to work with me. But if they won’t work with me on prices, I won’t work with them.”
Apparently, executives at the BEK producer that dropped its September price decided if they want to do business with Americans, they should drop prices more in line with its moves in Europe. With both North American and European BEK prices set to drop $100/tonne in September, it will allow US price erosion to more closely reflect this summer’s oversupplied situation globally.
Back in June, US BEK effective list prices increased $60/tonne to $1,555/tonne. In contrast, a similar price hike failed in Europe where prices flat-lined at $1,440/tonne. Then, European BEK price tumbled $70-80/tonne in July to $1,360-1,370/tonne, according to Fastmarkets’ PPI Europe. Throughout those two months, US prices did not decline, which represented a disconnect between growing supply, eroding prices offshore, and market conditions in North America that were starting to fall apart – despite a lack of transparency among producers until this week.
The disconnect between US and European prices marked a $130-140/tonne split in prices between the two mature regions. Meantime, in China, a $70/tonne decline from leading Chilean producer Arauco on Monday to $580/tonne on August business increased spreads that had become unsustainable, buyer and seller contacts told P&PW.
North American softwood markets, while in better shape for producers than hardwood, will not prove exempt from the BEK pressure, sources believe. This month, benchmark northern bleached softwood kraft (NBSK) effective list prices declined $30/tonne as buyers focused on narrowing a large gap between net prices on regular contract tonnes and net spot market prices.
“Demand is surprisingly pretty good in North America across all grades, however we are feeling pressure from customers because of the large price difference between markets at this time,” said an NBSK market participant, whose view was typical.
US NBSK final August effective list prices closed at $1,760/tonne, down $30/tonne, according to the P&PW survey. Southern bleached softwood kraft (SBSK) declined to $1,700, down $20.
Anxiety about a lack of NBSK from Canada dissipated as Canadian National (CN) trains went into action on Aug. 23 and Canadian Pacific Kansas City Ltd (CPKC) resumed on Aug. 26. This week, as negotiations on new spot market shipments heated up, there was only $5/tonne in spot market erosion on both NBSK and SBSK. That came after $10-20/tonne declines in mid-August.
However, with NBSK levels closing August at $880-910/tonne net delivered to the US East and Midwest, it still represented an average 49% delta vs the closing effective list price of $1,760/tonne. That spread remains too big, several market participants said, since it is bigger than average discounts in 2024 of 44-48%.
There are signs that while NBSK prices declined in North America, they are at least stabilizing this week in China. Export prices to China saw Canadian and Nordic NBSK prices on the international market hold unchanged at 740-760/tonne net CIF, according to Fastmarkets’ PPI Asia. That’s still down $150/tonne since June.
By late this week, a contact at a Canadian NBSK producer said he had just sold 10,000 tonnes to China at $770 net, up $10. It’s not yet known if such deals will mark a new trend, but even if a $10 successful hike is only on a minority of shipments, it suggests a possible floor in NBSK – unlike BEK, which remained in a tailspin this week.
On Monday, sources said Chilean producer Arauco announced to Chinese customers that its August BEK price was dropping to $580/tonne, down $70/tonne. In contrast, the firm left bleached radiata pine (BKP) flat at a $765/tonne list and unbleached softwood kraft (UKP) unchanged at $690, according to market participants.
“Arauco did a $580 list price this month, but the feedback was no good,” said a Chinese market participant regarding the BEK drop. He said that others would have to also drop prices and see how the market reacted.
Others did, according to Chinese sources. One contact named a second major global BEK producer that dropped its price even further, to $550-560/tonne net CIF. A Brazilian BEK producer contact said he expects Chinese demand to bounce because port inventories of BEK in China are low. However, the latest prices are still not going to represent a bottom, a Chinese market participant countered.
“I am pessimistic about the September demand bouncing forecast because so far, I don’t see any sign for those pulp-based paper grades’ prices moving up,” said the Chinese market participant. “And paper mills are not willing to restock as they still think pulp prices have not reached its bottom.”
If producers are looking for signs of a bottom, it won’t come from industry statistics. Worldwide chemical market pulp producer inventories soared by four days-of-supply to close July at 47 days-of-supply, the Pulp and Paper Products Council (PPPC) reported Wednesday.
July’s four day-of-supply increase corresponded to a whopping 605,000 tonne surge vs closing June stocks of 6.280 million tonnes, according to a P&PW poll of industry analysts. That brought July’s closing inventory to an estimated 6.885 million tonnes, a 12-month high. The latest stocks are at their highest level since 7.1 million tonnes was recorded in August 2023, a month that saw the end of a months-long global pricing decline.
July ‘World-20’ inventories at bleached softwood kraft (BSK) market pulp producers closed at 43 days-of-supply, jumping five days vs June. BHK producer stocks increased four days-of-supply to close July at 50 days, the PPPC reported.
The shipment-to-capacity ratio, which some watch as a key indicator of demand, tumbled to a paltry 81% in July, sliding 10 points below June’s average of 91%. That was also a five-point drop from the year-ago ratio of 86%.