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Increase in the pulp price: What are the reasons?

The price of pulp experienced some of its lowest prices in 2020. However, 2021 has brought spot price increases in February and early March.

Pulp is a global commodity within the pulp and paper industry, and market pulp is a constant element in global trade flows due to its leading role in the manufacture of numerous types of paper.

Market pulp prices have always been volatile and kraft pulp experienced some of its lowest prices in the last 10 years in 2020. However, 2021 has brought skyrocketing spot price increases in February and early March.

Between December 1, 2020 and the end of February 2021, bleached softwood kraft manufacturers were up 48% on The Shanghai Futures Exchange (SHFI), and additional price increases have been announced, leaving buyers wondering what has happened and when will it end.

WHAT FACTORS INFLUENCE ON THE PRICE INCREASE?

Many factors play a role, including a shortage of ocean freight, a lack of containers, and price increases in shipping rates.

The lack of containers and the challenges of sea freight have received a lot of attention in recent months, as well as the increase in freight prices. However, market pulp is usually shipped via fractional loads, so there is no competition for containers that are currently hard to find, which is good news for paper manufacturers. However, if the ships do not go to sea due to the lack of cargo in containers, bulk market pulp shipments are also likely to remain in port until there is sufficient cargo to travel on the same ships.

Another factor is the increased at-home tissue demand while away-from-home demand experienced a decline. With the quarantine and lockdown, work from home and remote classes were implemented to help contain the spread of the COVID-19 pandemic, therefore the demand for At-home tissues increased. At the same time that commerce in general was closed, generating low consumption of away-from-home products.

Countries like China are also experiencing a shift towards premium toilet paper and paper towels with the growth of the middle class. Notably, premium household toilet paper and paper towels are made up of more virgin fiber, while commercial toilet paper and towel producers use less virgin fiber and more recycled fiber to economically manufacture these commodities. In low-fiber countries like China, this translates into a higher demand for pulp from the kraft market to produce these premium types of paper.

China implemented a ban on mixed papers before implementing a comprehensive ban on the importation of all solid waste, which came into effect on January 1, 2021. This latest ban includes classified office paper. Without this stream of recycled paper along with being in a wood-scarce region, many Chinese producers will have to use virgin market pulp, as the amount of recycled market pulp currently available is insufficient to meet production needs.

Companies using market pulp probably bought as much as possible, while prices were at an all-time low last year. This inventory is likely running low or even completely depleted. The resulting demand, combined with other factors, also contributes to price increases.

Although printing and writing (P&W) mills in North America and Europe are often integrated while making their own pulp, some also require bleached kraft market pulp and this market was hit hard in 2020, resulting in a lack of order downtime and even permanent closures. These changes in the balance between supply and demand for market pulp influenced last year’s low prices. The return of part of P&W’s demand has, in turn, contributed to the return of current pulp demand from the kraft market.

Due to the global nature of the pulp market, coupled with these developing and ongoing factors, pulp producers will end up selling to whoever and wherever they can get the best price, assuming freight options are available.

The new pulp capacity will go live, however this will not happen anytime soon. Prices are expected to continue rising in the short term, albeit perhaps at a slower pace.

Read the full story here.

Source
Forest2Market
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