NBSK prices at 11 year high on low supplies, strong demand

NBSK prices at 11 year high on low supplies, strong demand

GRAPE STRUCTURE. Chemical paper grade market pulp is sold on the open market and excludes pulp consumed internally or at affiliated mills. Figures include exports, with the exception of integrated pulp shipped from Canadian to US mills owned by the same company. Pulp grades are based on origin (northern, southern); wood type (softwood, hardwood); pulping process (kraft (sulfate), sulfite); and bleaching (bleached, semibleached or unbleached).

Northern bleached softwood kraft (NBSK) is a benchmark grade because its long fiber length reinforces fine papers and tissue, and buyers typically pay a premium for it. US southern softwood statistics include fluff pulp. Canadian shipments exclude some 2.3 million tonnes of bleached chemi-thermomechanical pulp capacity.

SHIPMENTS. Worldwide shipments in 2006 were 38.9 million tonnes, and a 3.9% year-over-year increase marked the fifth consecutive year in which deliveries rose over the prior year. In 2006, shipments were 18.2% higher than 2001, when global deliveries totaled 32.9 million tonnes.

Strong Chinese and North American demand brought another increase through the first five months of 2007, and deliveries totaling 16.4 million tonnes were 1.6% higher than during the same time in 2006, according to the Pulp and Paper Products Council. The strong Canadian dollar hampered margins at the country’s mills, but China pulled export tonnage and the US paper industry appeared in better condition.

The market pulp industry exited a rough period in 2005-2006 to find strong demand for market pulp and considerable traction on prices during 2007. As a result, worldwide market pulp shipments to North America through May totaling 3.7 million tonnes were up 7.5% vs the same time last year. In Asian regions, demand was mixed for the first five months but strong in China, where new paper mill capacity mopped up as much tonnage as possible at continually higher prices. Global shipments to China through May totaled 1.9 million tonnes, up 14.8% from the same time in 2006.

PRICES. Benchmark NBSK prices in the first half of 2007 rose three times in the US and posted an 11-1/2 year high when the effective list price hit $830/tonne, fueled by low supplies, domestic demand and spiking prices in Asia. That was a 10.7% gain from July 2006, when North American mill closures began a trend of lower inventories. With global market pulp stocks at 27 days of supply and softwood lower at 23 days of supply at the end of May, prices continued to either hold or rise over the summer for the second year in a row.

In addition, July NBSK prices were $95-120/tonne above key hardwood kraft grades such as bleached eucalyptus and northern bleached hardwood kraft, a large price premium over the $75/tonne differential in July of 2005.

OUTLOOK. Hardwood kraft pulp prices are expected to rise in the late summer to early fall, as producers try to reign in the larger-than-typical differential, and some producers had $20/tonne increases slated for this month. Paper demand typically picks up in the fall, which combined with the earlier closures of market pulp mills owned by Bowater, Fraser Papers, Georgia-Pacific, Neenah Papers, Tembec, Western Forest Products and Weyerhaeuser, should avert a supply bulge. Also, the strong Canadian dollar raises the costs of its producers and lifts the price level where mills would be forced to close, reducing the risk of price drops for the rest of 2007.

While North American market pulp capacity has closed in recent years, new capacity came from Latin American producers in late 2006. But buyers were disappointed this year when expectations of downward pricing pressure never materialized, and once again the market is looking toward new capacity as contributing to more supply availability by the year’s end, and pricing pressure possible in early 2008.

Copyright Paperloop, Inc. Aug 2007

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