VP, Fiber Economic Analysis · delivering finished products and pulp stranded at the major ports....

2020 | Fastmarkets | World Pulp Outlook 1

World Pulp OutlookMarch 2020

David Fortin

VP, Fiber Economic Analysis

Recent market conditions

Supply disruptions tighten the market in early 2020

Massive supply disruptions continued apace in early 2020, more

than offsetting seasonally weak demand, and kept inventories

from building, but…

Producer inventories could be forced higher again

The combination of weak demand and additional supply kept

inventories near record levels in 2019. The tide was turning as

production curtailments accelerated in 2H19, then Covid-19 hit.

Back to market fundamentals: What goes up must

come down

Demand improvement and supply curtailments are key to

completing the inventory correction and the next swing in prices.


Covid-19 disrupting pulp and paper supply chain

Paper and board producers operating in China are doing so at

curtailed levels. They are facing weak demand, challenges

delivering finished products and pulp stranded at the major ports.

The corona virus has derailed rebalancing in the pulp market for now

36%China accounts for 36% or 24 million

tonnes of global market pulp demand

2,000,000 mtChina imports an average of nearly

2 million tonnes of pulp each month

32020 | Fastmarkets | World Pulp Outlook

>700,000 mtInventories at the major Chinese ports

of Qingdao and Changshu are already

carrying excess volume

Rest of World64%

China36%

China’s share of market pulp demand

Rest of World China

Impact on pulp and paper markets

• Weaker end-use demand

• Limited domestic production

• Supply chain disruptions

• Inventory bottlenecks…

Could offset recent supply-side

disruptions in the pulp market and result

in a wider bottom

What goes up…


0

100

200

300

400

500

600

700

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Cum

ula

tive p

rice c

hange,

US

dolla

rs p

er

tonne

Consecutive months

Cumulative price change

Mar-16 to Oct-18Dec-85 to Mar-90

Dec-93 to Nov-95

0.75

0.95

1.15

1.35

1.55

1.75

1.95

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Net

price / h

igh a

vera

ge v

ariable

cost

Consecutive months

Net price / high average variable cost

Mar-16 to Oct-18

Dec-85 to Mar-90

0.00

0.50

1.00

1.50

2.00

2.50

0 5 10 15 20

Net

price / h

igh a

vera

ge v

ariable

cost

Consecutive months

Oct-18 to present

Mar-90 to Oct-91

Nov-95 to Apr-96

-500

-400

-300

-200

-100

0

0 5 10 15 20

Cum

ula

tive p

rice c

hange,

US

D/tonn

e

Consecutive months

Oct-18 to present

Mar-90 to Oct-91

Nov-95 to Apr-96

…Must come down

NBSK delivered to Northern Europe


0

500

1,000

1,500

2,000

2,500

06 07 08 09 10 11 12 13 14 15 16 17 18 19

Thousa

nd t

on

ne

s

Monthly bleached kraft pulp imports to China

BSK BHK

Chinese wood pulp import growth reaccelerated in 2019

WOOD PULP IMPORTS

ACCELERATED IN 2017

• Growth was steady and strong

during the last decade plus

• Ratcheted higher in 2017 as

markets reacted to new Chinese

policies

• Settled back lower once limited

market share gains were made

• Weak demand and high stocks

resulted in first quarter 2019 imports

falling 16% from 2018

• Only marginal upward pressure on

wood pulp imports from China RCP

policies moving forward


1.1 million

tonnes/year2.2 million

tonnes/yr

0.6 million

tonnes/yr

China stalls as global economic growth slows

GLOBAL GROWTH

DECELERATING

• Developed countries still growing

but at a slower rate

• This is not unexpected given the

length of this business cycle

• New leaders, policies and the rise

of protectionism have both

stimulated growth and created

headwinds

• Growth in China continues to

decelerate, with growing uncertainty

around Covid-19

• Meanwhile, we are already

contending with a global recession

in the industrial markets


45.0

46.0

47.0

48.0

49.0

50.0

51.0

52.0

53.0

54.0

55.0

12 13 14 15 16 17 18 19 20

Purchasing managers indices

Official Caixin Global

US announces

first round of

tariffs against

China

Massive decline in graphic paper production weighed on pulp consumption in 2019Thousand tonnes


1,200

1,000

800

600

400

200

0

200

United States

Printing & writing

Cartonboard and specialties

Tissue

2019 World-20 pulp

shipments0.0% 7.2% 19.0%

1,400

1,200

1,000

800

600

400

200

0

200

400

600

Western Europe

Printing & writing


Tissue

1,200

1,000

800

600

400

200

0

200

400

600

China

Printing & writing


Tissue

0 1,034 2,791

-911 mt

-766 mt-347 mt

0.0

0.5

1.0

1.5

2.0

2.5

2017 2018 2019 2020 Q1 Annualized

Dow

ntim

e,

mill

ion t

onnes

Downtime Average

Unexpected downtime continues near historical highs


Producer inventories nearly balanced by the end of 2019


Source: PPPC, Fastmarkets RISI.

15

25

35

45

55

65

75

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Producer inventories, days of supply

BHK Average BHK (2004-10 = 36.4, 2011-18 = 41.6) BSK Average BSK (29.9)

Chinese port inventories remain stubbornly elevated

SUPPLY CHAIN DISRUPTIONS

COULD PUSH INVENTORIES

HIGHER

• Inventory data always difficult to

read accurately; need to consider

consumer and producer inventories

• Key to change in price direction is

timing of inventory correction

• Will need a combination of stronger

consumption and further supply

constraints for correction to

complete…

• Supply chain disruptions in China

along with elevated stocks in

Europe could delay or even reverse

any near-term correction


0

200

400

600

800

1,000

1,200

1,400

Chinese port inventories, thousand tonnes

Qingdao Changshu

Domestic pulp prices in China at or near a bottom


* Reflects net renminbi domestic resale price converted to US dollars, excluding VAT and logistics costs.

500

550

600

650

700

750

800

850

900

950

1,000

11 12 13 14 15 16 17 18 19

NBSK prices in China, US dollars per tonne

NBSK domestic resale* NBSK net import

400

450

500

550

600

650

700

750

800

850

11 12 13 14 15 16 17 18 19

BEK prices in China, US dollars per tonne

BEK domestic resale* BEK net import

Futures market contract slips below import and resale prices

May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20

4,000

4,200

4,400

4,600

4,800

5,000

5,200

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Pri

ce (

RM

B)

Volu

me

Shanghai Futures Exchange May 2020 BSK pulp contract

Volume Price (R)

Roughly

equivalent to

$560/tonne


NBSK premium to BEK returns as hardwood slips further

THE SPREAD BETWEEN

NBSK AND BEK HAS

REOPENED

• The large spread in 2018 allowed

BSK to fall harder and faster at first

• The spread is now well above the

cash cost differential, making BEK

more attractive on the margin

• The larger the NBSK premium gets

and longer it remains elevated, the

more impetus for consumers to

utilize more BEK wherever possible

• Weak market and reduced BSK

availability may result in the spread

remaining larger for longer


-100

0

100

200

300

400

500

0

100

200

300

400

500

600

700

800

900

1,000

10 11 12 13 14 15 16 17 18 19 20

Net prices delivered to ChinaUS dollars per tonne

NBSK-BEK (R) NBSK BEK

Outlook for market pulp

End-use markets remain relatively weak

Secular decline in graphic papers, weak macroeconomic

environment and RCP policy changes are weighing on global

paper and board production.

Limited capacity gains until 2021

The list of proposed projects projected to start after 2021 is

long, but only a few projects will actually move forward and no

large capacity additions are expected until 2021.

Pulp markets could remain soft well into 2020

There is plenty of uncertainty around the demand outlook.

However, if the global economy slows further, the pulp market

may not grow much tighter until 2021.


Prices hit the high end of the industry cost curve

Prices of both BSK and BHK have fallen to the cash costs of

high-cost producers and have started to result in market-

related downtime.

15

BSK cash cost curve from Mill Intelligence

EASTERN EUROPEAN AND

LATIN AMERICAN PRODUCERS

ARE AT THE LOW END OF THE

COST CURVE

• Latin American producers benefit

largely from the exchange rate

• Pine can be grown in other regions of

the world just as well as in Latin

America

• NBSK producers in British Columbia

will face the combined challenges of

weak pulp prices, a lack of fiber

availability and higher fiber costs


■ Asia ■ Europe ■ Latin America ■ North America ■ Oceania

Net loss for BSK, 2019-2020


Company Mill Country Project CapacityThousand tonnes

Oji Tasman New Zealand Conversion to UKP, 2019 -125

BillerudKorsnäs Gruvön Sweden Integration to new BM, 2019 -130

Heinzel Pols Austria Integration to new PM, 2019 -80

Arauco Valdivia Chile Conversion to BHK on the way to DP, 2019 -350

Stora Enso Enocell Finland Conversion to DP, 2019 -320

Ilim Ust Ilimsk Russia Rebuild, 2019 50

Resolute Saint-Félicien Canada Rebuild, 2019 30

Paper Excellence Pictou Canada Closure, effluent treatment -300

Nordic Kraft Lebel-sur-Quevillon Canada Restart, 2020 ? 300

Domtar Ashdown USA UFS conversion to fluff/SBSK, 2020 70

Stora Enso Oulu Finland Integration to kraftliner, 2020 -110

Net total, 2019-2020 -965

Many more BSK projects announced for 2021-2025



Arauco Horcones Chile Rebuild, 2021 35

Paper Excellence Prince Albert Canada Restart, 2021 ? 350

Mercer Stendal Germany Debottleneck, 2021 80

Ilim Ust Illimsk Russia Rebuild, 2021 130

Metsä Fibre Kemi Finland Brownfield, BSK/UKP, net of old mill closure, 2022-23 800

KaiCell Paltamo Finland Greenfield, 2022-23 510

Boreal Bioref Kemijärvi Finland Greenfield, BSK/UKP/DP swing, 2022-23 500

Sveza Vologda Russia Greenfield, 2022-23? 300

CPC/Chentong Amursk Russia Greenfield, 2022-23 ? 800

Segezha Lososibirsky Russia Greenfield, 2024 560

Siberwood Abalakovo Russia Greenfield, 2024 ? 700

Kraslesinvest Boguchansky Russia Greenfield, 2024 ? 800

Klabin Ortigueira Brazil New line, BSK/fluff swing, 2025 ? 400

Net total, 2019-2025 5,965

BHK cash cost curve from Mill Intelligence

LATIN AMERICAN

PRODUCERS DOMINATE THE

LOW END OF THE COST

CURVE

• Latin American producers benefit

from low-cost wood and the

exchange rate

• Higher-cost facilities tend to be

much smaller and located in Asia

and the Northern Hemisphere


■ Africa ■ Asia ■ Europe ■ Latin America ■ North America

China: Average value of hardwood chip imports, 2009-2019 YTDUS dollars per BDMT, nominal prices CIF

21

100

120

140

160

180

200

220

240

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019YTD

Vietnam Australia

Chile Thailand

2019 | Fastmarkets RISI

Little growth in BHK supply through 2020



ENCE Navia & Pontevedra Spain Debottleneck projects, 2019 100

Yongkai Guangxi China Swing from bagasse, 2019 70

Bukóza Bukóza Slovakia Integration to kraft white top, 2019 -20

Mondi Ružomberok Slovakia Rebuild, 2019 100

Mondi Ružomberok Slovakia Integration to kraft white top, 2020 -100

Fortress Paper Thurso Canada Closure, Q4 2019 -25

Oji Nantong China Debottleneck, 2020 75

Ilim Bratsk Russia Rebuild, 2020 (potential push to 2021) 175

Arauco Valdivia Chile Conversion to DP, 2020 -200

Vietracimex Quang Ngai Vietnam Restart, 2020? 400

Net total, 2019-2020 575

Many more BHK projects announced after 2020



Mondi Ružomberok Slovakia Forward integration to white top, 2021 -50

Chenming Huanggang China Conversion to DP, 2021-23 -400

Arauco Horcones Chile Net of old line closure, 2021 1,270

RGE/Bracell Lençóis Paulista Brazil New swing DP/BHK line, 2021 1,250

UPM Paso de los Toros Uruguay Greenfield, 2022 2,100

Sveza Vologda Russia Greenfield, 2022-23 1,000

Metsä Fibre Kemi Finland Net of old mill closure, 2022-23 150

Euca Energy Alto Araguiai Brazil Greenfield, 2022-23 2,000

Eldorado Três Lagoas Brazil New line, 2024? 2,300

Segezha Lesosibirsky Russia Greenfield, 2024 140

ENCE Navia Spain New swing DP/BHK line, 2024? 340

Suzano ? Brazil Multiple options, 2023 2,300

Net total, 2021-2024 12,400

World paper and board production remains weak

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Growth in world paper and board production by gradeThousand tonnes

Graphic papers

Cartonboard, wrapping and other paper and board

Tissue

% Ch market pulp demand


-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Growth in world paper and board production

% Ch total paper and board (R)

Pulp market could remain weaker for longer


0.86

0.87

0.88

0.89

0.90

0.91

0.92

11 12 13 14 15 16 17 18 19 20 21

Shipment/capacity ratio

Forecast summary

▪ Base case forecast calls for continued

weakness in the global economy in

2020

▪ Demand could inch ahead of supply

again in 2020 depending on the pace

of the inventory correction and the

health of the macroeconomy

▪ Inventory overhang and weak

macroeconomic environment could

keep markets weaker for longer

▪ Risks largely revolve around

inventory levels, the health of the

Chinese economy, the trade war with

the US and a looming recession


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VP, Fiber Economic Analysis · delivering finished products and pulp stranded at the major ports....

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