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Although some players on the sack kraft market certainly wished back in December that the situation would change when the calendar switched from 2021 to 2022, January has been nothing but a continuation of the drum-tight market observed last year.
Citing sustained incredible demand, in some instances, market players reported that unbleached sack kraft paper outpriced bleached sack kraft paper. There were also anecdotal reports of end-users in international markets, as well as some in European destinations that have not yet implemented heavy crackdowns on plastic, switching from paper back to plastic if their machinery to do so was still intact.
The Finnish Paperworkers’ Union strike at UPM’s Pietarsaari pulp mill, which has been extended until February 19 and has resulted in interruptions at BillerudKorsnäs’ mill at the site, intensified an already strained unbleached market. On top of that, continued production issues requiring maintenance at Segezha have resulted in them “disappearing from the market,” according to one converter. The Russian company is reportedly still dealing with recovery boiler problems which have plagued them since last year.
Logistical issues including delays at ports such as Gothenburg also continue to weigh heavily on the market for both grades. “We had [tonnes of paper] ready to go in Sweden, but it took four weeks instead of 10 days [to arrive at our facility],” lamented one British converter. All of these factors contributed to further upward pressure on pricing.
From Q4 into January, levels for unbleached sack kraft paper in the main continental markets rose by another Euro 100/tonne while prices for bleached paper increased by another Euro 50/tonne, with producers of both grades eyeing additional increases in Q1. Year on year, from January 2021 to January 2022, prices for unbleached sack kraft paper increased by some Euro 400/tonne, while prices for bleached paper increased by Euro 250/tonne.
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“Some days, I would like to switch off the light and go back home,” said one frustrated converter, who reported that he was paying 115% more for unbleached sack kraft paper in January 2022 than he was a year earlier. He added that he had been bombarded by energy surcharges, some of which were charged monthly, that ranged from Euro 50-150/tonne. These surcharges began largely when energy prices peaked in October of last year and have continued as high price levels have been sustained. One converter called the surcharges, which have been implemented by a number of producers, the “fashion of the moment.”
“The prices [for unbleached paper] are really disgusting, but I cannot deal with a lack of volumes,” a converter said. “I cannot say ‘go to hell’ if a producer says prices are Euro 1,400/tonne. I need every single kilo. They are aware [of this]. They know and they do not care,” he added, driving home the point that in Q4 of last year and thus far this year, availability has continued to be more of a concern to buyers than price. This summed up the sentiment on the market from the converter side, with most on the continent reporting that their stocks had dwindled and that they were still struggling to acquire adequate volumes.
Producers did not appear to be having a cake walk either, however. “We are selling at incredibly high prices but not with any real [financial] benefit,” one producer, who implemented an energy surcharge in November, said.
Another producer observed that the “supply chain is getting worse rather than better. You can produce paper, but it piles up in the ports.” Still, he said that demand had not changed and that he did not foresee it easing and noted that whatever price is asked, buyers accept it and ask for more. “We always see this business as cyclical, but this is a very long cycle,” he said. “Perhaps towards year’s end we could see a slowdown, but why? The supply chain is so empty,” he added.
A majority of converters said that they were not able to take on new business as a result of the lack of paper availability, including one who reported that it was the first time in 30 years that they had been unable to do so. “There is no paper today, it is impossible,” another converter said. Those who consider themselves to have “sales personalities” are unable to use them to help expand their client lists, said a third converter.
The buyers who were managing to acquire volumes spoke of uncouth efforts on behalf of producers to implement monthly price adjustments. “You confirm a price [with a producer] and then later, you get a phone call asking if you want it at a new [higher] price. This is a game, it’s unbelievable.”
“It’s a crazy market, it’s unbelievable what we are living through” one trader said, summing up the sentiment. “The perfect storm continues,” he added.
The heavy demand and the supply shortage, in addition to the fact that “[people perceive] unbleached kraft paper to be more natural and eco-friendly,” according to a converter, has, incredibly, driven the price of unbleached kraft paper to the same level as that of bleached paper in some cases, an event that one producer said was shocking and “had never been seen before.”
The spot market appeared to be rather subdued, so much so that even inquiries have slowed in some cases. One producer reported: “We are getting spot inquiries on a daily basis, but we cannot meet them.” The huge demand for paper has also caused companies to push back planned maintenance on their PMs.
Another producer said that those searching for spot volumes had disappeared from his e-mail inbox and voicemail. “I think they’ve given up,” he said. Still, one converter reported that prices were in the Euro 1,500/tonne range for unbleached sack kraft paper on the Southeast Asian and Middle Eastern markets, a price point that was echoed by one of his colleagues.
While demand for the bleached grades has kept up into the beginning of the year, and was “even stronger than December 2021,” according to one producer, supply from two producers was significantly curtailed. A Finnish Paperworkers’ Union strike at a UPM pulp mill in Pietarsaari has also resulted in downtime of the nearby BillerudKorsnäs mill, because it relies on the UPM mill for pulp and other input materials, even though BillerudKorsnäs was not party to the labor dispute. Though last week BillerudKorsnäs was reportedly weighing layoffs at the plant, reports also emerged of an alternative plan to keep the mill running. A spokesperson from BillerudKorsnäs, however, told PPI Europe this week that a decision still had not been reached. The mill produces nearly 200,000 tonnes/yr of bleached sack kraft paper according to Fastmarkets RISI’s Asset Database.
While last year Segezha ventured into bleached paper production and sold some volumes on the open market, the company is reported to be focusing more on maintenance issues to bring their unbleached production back up to full capacity than they are on their bleached production, and any bleached volumes produced would be kept internally for their converting branch.
One converter said that demand for the grade is stronger than it was in the past, but added that delivery times seemed to be stabilizing or going down. Some of his customers, he believes, are beginning to build stocks. Another converter in a different country said that he saw some “anecdotal evidence of loosening” and that “availability had improved slightly since the beginning of the year.” The overwhelming feeling on the market, however, was that the situation was still quite tense and would continue apace for both grades until Q3 at the absolute earliest.