Pulp and Paper NetLetter

Wednesday, February 28, 2007

    + PPN NetLetter
NBSK Prices Continue Upward, While Hardwood Stalls
3G Publishing 2/15/2007 9:54:36 AM
Softwood pulp producers are moving their products with little difficulty at higher prices in February. Before mid-month, as some observers expected, Weyerhaeuser led off yet another $20/tonne price increase for northern and southern bleached softwood kraft for North American and European markets, effective March 1.

However, it is not yet clear how much of the market will follow. Canfor Pulp said it would hold it NBSK prices at $790 in the US and $760/tonne in Europe. The company, which has lost use of its bleaching line at one of its two pulp mills in Prince George, B.C., indicated that its papermaking customers cannot afford any hike at this time.

Weyerhaeuser's March NBSK price will be $810/tonne for North America and $780/tonne for Europe. US southern pine will list for $770/tonne in North America and $740/tonne in Europe. With effect, the March price for NBSK will move above $800/tonne for the first time since 1995.

While the previous $20 increase quickly became reality in North America at $$790/tonne, even the sometimes slow-moving European markets have seen January's announced softwood hikes take effect. Foex Indexes-listed price average of NBSK topped $755/tonne in the first weeks of February, as prices rose $25/tonne since the start of the year. With a slight weakening of the euro, the Western European average price rose by €26.50/tonne by mid-February.

The large Nordic NBSK producers, which control the European market, set their references mostly at $750/tonne for January, while Canadian producers sought $750-$760/tonne. Even without a February hike and even in southern Europe, NBSK has moved toward $760/tonne. Low pulp inventory levels among consumers and at ports are aiding the pricing structure.

While the January data from reporting agencies was still being collected, there was little evidence of a winter slowdown for softwood demand or a price relaxation following $130/tonne in 2006 increases for the world's two largest market regions. Bleached softwood inventories for the Global-19 countries have been a steady 24-25 days of supply, equal to 1.4 million tonnes, for several months.

For China, where only unbleached softwood hikes of $20/tonne have been announced for March so far, bleached softwood increase announcements of $20/tonne were expected to be made by Canadian, Chilean and Russian producers after $20 February hikes to $720/tonne for NBSK and $710 for radiata pine were accepted quite rapidly by Chinese customers.

Their pulp stocks were believed to have been depleted while papermakers successfully pressured pulp suppliers to hold prices level in December and January. Demand, while slower at year-end, rose 9.4% for 12 months to 3.97 million tonnes for chemical paper grade pulps, according to the Pulp and Paper Products Council.

Chinese pulp prices have risen the fastest of any major market in the past year but for softwood there is little recourse for papermaking customers that cannot use much hardwood except to ante up. And imported softwood prices to Asia will continue to rise because of Canadian supply problems.

Unexpected supply problems among various major suppliers have further crimped softwood pulp supplies. The latest was the explosion this week in the bleach plant of Canfor Pulp LP's Intercontinental mill in Prince George, B.C., which left the facility producing only unbleached instead of northern bleached softwood kraft (NBSK) for the time being.

Pope & Talbot declared a "force majeure" on shipments from its Mackenzie, B.C., mill, following two months of reduced output from the 240,000 mtpy mill due to mechanical problems, power outages and fiber shortages. The company also lost more than 5,000 tonnes of production at its Nanaimo, B.C., mill over Christmas because of rescheduled maintenance due to a lack of wood chips.

Then in early February, Canfor reported that its Intercontinental Pulp mill in Prince George experienced an explosion in its bleaching line. Until repairs are completed on the 315,000-tonne NBSK line, the mill will be producing only unbleached softwood kraft (UBK) pulp. From a financial perspective, that's not significant because the price differential is just $20-$30/tonne, but it otherwise adds to a tight NBSK market.

Europe's largest producer, Södra Cell, has also experienced delays for customers in Europe because of storms and accidents on top of supply issues stemming from Hurricane Per, which struck southern Sweden in mid-January. Södra said the Per could cause some changes in its raw material supply and that pulp deliveries could be affected during the first half of this year.

While earlier unseasonably warm weather along the Baltic that kept foresters from retrieving their felled timber has passed, hardwood markets may get a boost while Södra focuses on storm-felled wood before July in order to prevent losses from spruce bark beetles.

The hardwood markets are in need of a propping-up even though, so far, prices are generally stable in most of the US and Europe. A $10-$30/tonne price pullback for various hardwood pulps in Asia in January evidently did not spread beyond the region.

Hardwood pulp prices in North America are holding at or near the $690/tonne reference for both northern and southern grades and $670/tonne in Western Europe.

Global-19 producers saw hardwood shipments rise 1.24 million tonnes last year, an 8.1% gain to 16.34 million tonnes, and 1 million tonnes of the increase was from eucalyptus suppliers with new capacity. There is more than that amount in increased eucalyptus capacity coming on-stream this year in Chile and Brazil.

Because of that, as well an unknown amount of new hardwood being produced in Thailand and Indonesia, there is little doubt that sellers to the Asian hardwood markets are in for a tough time ahead.

For Europe and North America, modest demand growth is expected for uncoated and coated freesheet paper, so hardwood pulp demand should also see some growth. Should the pipelines to Asia back up, however, the European and North American markets could be awash in Latin American pulp. And with the price differential to NBSK at $100/tonne and rising, papermakers everywhere are looking for ways to substitute eucalyptus for softwood.

--Gregg Fales, 3G Publishing

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