Strike in Finland and fire in Chile postpone correction of pulp prices
However, the devaluation of the fiber is inevitable, due to the new factories starting operations in South America
At the end of 2022, pulp prices started a correction path, although they found important supports, even if momentary, at the beginning of this year. An unprecedented forest fire in Chile and strikes at ports and road transport in Finland could sustain commodity prices for longer, due to an imbalance between global supply and demand. However, the devaluation of the fiber is inevitable, due to the new factories coming into operation in South America.
Since the beginning of the year, the net price of hardwood has fallen by US$72 in the Chinese market, or around 9%, to US$755 per tonne. Softwood, on the other hand, has been on negative ground since the beginning of the year and now is up almost 2%, or US$ 15.30, to US$ 900 per tonne in China.
“The current conditions in the softwood market have alarmed the Chinese, since the strikes in Finland, the fires in Chile and the shortage of wood in Canada design a scenario of limited supply [of this type of pulp]”, pointed out Citi analysts in a report.
Hardwood fiber, in turn, should be indirectly affected by the fires in Chile, since, despite not having directly affected operations, they caused relevant impacts on costs and logistics for the giants CMPC and Arauco. In addition, with the increase in the spread between fiber types, a migration to cheaper raw materials tends to occur.
According to Fastmarkets RISI, the strikes in Finland should last until March, affecting the softwood market during the period, in addition to being added to the problems of access to the commodity in the European market due to the war between Russia and Ukraine and the shortage of wood chips in the Northern Hemisphere.
In 2022, pulp prices had successive readjustments, with stability close to historical levels, impacted by stoppages in different regions of the globe, strikes and problems in the logistics chain, which led to a reduction in global supply and left stocks – both in the industry and consumers – at critical levels.
In this context, stocked volumes have not yet been normalized — in China, buyers are still waiting for the expected “erosion” of prices to return to the market and continue running with limited stocks.
To normalize this scenario, consumers are waiting for volumes from the MAPA Project, from Arauco, in Chile – which is already operating –, and from the new UPM factory, in Uruguay. Both should push prices down in the first half. MAPA adds 1.3 million tons of short fiber per year to the market, while UPM’s Paso de Los Toros unit brings another 2.1 million tons of short fiber per year.
It is necessary to consider that these volumes do not reach the market all at once, since the production lines must comply with learning curves that take months.
