The pulp market has undergone significant changes over the past year, and the uncertainties that gripped the market have largely subsided. One of the key factors affecting the market is the record-high pulp inventory volumes. Producers are facing an inventory bulge, particularly in bleached softwood kraft (BSK), which includes paper grade and fluff pulp. Although bleached hardwood kraft (BHK) inventory volumes have not reached historical peaks, the BSK inventory continues to set new record highs.
The global pulp industry is also witnessing capacity expansions, with several projects expected to add substantial new supply to the market. These projects include:
Arauco MAPA project in Chile: Started ramping up in March and is expected to produce around 800,000 tonnes of bleached eucalyptus kraft (BEK) pulp this year.
UPM Paso de los Toros mill in Uruguay: Started operation in April and aims to reach full capacity by the end of the year, adding 2.1 million tonnes of BEK pulp.
Metsä Fibre's Kemi mill in Finland: Planned to start up by the end of the third quarter of 2023, contributing about 880,000 tonnes of new (mostly softwood) pulp supply after the closure of the old Kemi mill.
CMPC Guaíba mill in Brazil: Investing in expanding BEK capacity by 350,000 tonnes in the fourth quarter of 2023.
Suzano Cerrado mill in Brazil: Expected to start up in the second half of 2024, adding 2.55 million tonnes of BEK pulp.
In response to the surplus, some pulp producers are taking temporary curtailments and downtime to help draw down inventory levels. For instance, Suzano decided to reduce its annual BHK operating rate in Brazil by 4 percentage points through the rest of the year. Moreover, there are concerns that some mill closures may become permanent during the downturn in the pulp market. Stora Enso's decision to shut down its Sunila BSK mill in Finland in the second half of the year is an example of the elevated risk of closures. Production costs play a crucial role for pulp producers, especially as prices have fallen towards the high-end of the cost curve for both BSK and BHK producers. This has led to a reduction in profitability and, in some cases, pushed mills into losses.
In terms of market risks and drivers, China's economic recovery is being closely watched. Measures taken by the Chinese government to stimulate the economy can significantly impact paper and board markets, which, in turn, may influence pulp demand and restocking efforts.
Furthermore, changes in US interest rates can impact the strength of the US dollar. A weaker dollar can support pulp prices at a higher price floor by raising dollar-denominated production costs and increasing the purchasing power of pulp buyers, particularly in China. While risks remain on the downside, unexpected downtime in major pulp mills remains a wildcard that could tighten supply and affect buyer confidence in future pulp availability. With record-high pricing from the previous year still fresh in buyers' minds, any unexpected outage or closure of a major pulp mill could stimulate the desire to stock up on relatively inexpensive pulp before the next major pricing cycle begins.
Overall, the global pulp market is facing various challenges and uncertainties, and industry participants are closely monitoring the inventory levels, capacity expansions, production costs, and market risks to navigate the evolving landscape effectively.
The information provided in this market insight is for general informational purposes and should not be considered as financial advice. It is not intended to offer any financial recommendations or endorsements. Any decisions made based on the content are the sole responsibility of the reader.
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