Russian raw material bans cause tissue market fragility
The restriction on the export of Russian birch, whose wood is composed of short fibers, has triggered a fight for pulp in Europe
Toilet paper has joined the list of products facing rising costs and supply chain weaknesses after Russia’s invasion of Ukraine.
According to Bloomberg, the ban on the export of Russian birch, whose wood consists of short fibers that make tissue products softer, has triggered a fight over pulp, the main input for paper production. As a result, all over the world, you can see thinner and more expensive toilet paper rolls.
Russia banned the export of birch wood in March in retaliation for sanctions imposed by the United States and the European Union after Putin’s attack on Ukraine. As a result, around 800,000 to 1.2 million metric tons of pulp are expected to disappear from the market, according to industry estimates.
Fiber prices are up about 45% this year as the cost of the energy-intensive process of chipping wood chips into pulp has soared. Now, as Europe’s biggest producers start to run out of supplies, papermakers are having to compete even more to secure their raw materials.
“There is no relief from abroad for wood needs,” said Paula Horne, research director at Helsinki-based PTT Research Institute. Finland is the second largest European producer of pulp, behind Sweden, according to Eurostat data. Both are key producers of the type of pulp used in products such as toilet paper and tissues. About 10% of Finland’s wood supply came from Russia. Other Northern Hemisphere trees are better suited for producing tear-resistant paper, such as that used in corrugated boxes.
Compounding the shortage of Russian wood, several unplanned plant shutdowns are also limiting the world’s pulp supply. Earlier this year, a workers’ strike in Finland affected production for more than three months. Meanwhile, the drought in Spain led the producer Ence Energía y Celulosa SA to close, as of July, the activities of its factory in Pontevedra. Brazilian company Suzano will close a pulp line at its Aracruz plant for almost 60 days to carry out an upgrade in the fourth quarter. As a result, the market will lose more than 1.4 million tons of pulp this year through September.
Thus, the industry should remain tight until the second half of 2023, said Rafael Barcellos, a research analyst at Santander. According to Bloomberg, he expects prices to gradually decline only after mills currently under construction in Chile and Uruguay begin shipping their products next year.
Pulp customers in Europe are concerned and are looking for supplies in other parts of the world. “Buyers are over-demanding from us,” said Leonardo Grimaldi, who oversees pulp sales at Brazil’s Suzano, the world’s largest producer of eucalyptus fiber.
Paper producers say their profit margins have shrunk because of rising pulp and energy costs. The energy crisis in Europe caused by Russian restrictions on natural gas forced companies to reduce production, such as Mëtsa Tissue, Essity and Germany’s Hakle, which even declared insolvency.
