VP, Fiber Economic Analysis

2021 | Fastmarkets | Global Pulp Outlook

Global Pulp OutlookSeptember 2021

David Fortin

VP, Fiber Economic Analysis

1

Key factors behind the record rise

in pulp prices – what comes next?

Supply-side disruptions accumulate

Delayed and extended downtime along with logistics challenges

tightened the market as demand started to recover from the depths of

the pandemic. Shipping containers remain in short supply, freight

rates are up and deliveries are delayed.

Inventory levels mixed and ordering in China slows

Producer inventories are starting to tick higher, but teasing out the

impact from the logistics backlog remains challenging. Consumer

inventory levels in China are being drawn lower in anticipation of

upcoming supply additions and weak end-use markets are allowing

buyers to limit ordering as well.

2021 | Fastmarkets | Global Pulp Outlook 2

Demand recovery continues from pandemic lows

The worst of the economic impact from the pandemic seems to be

over. While tissue demand is well off last year’s frenzied pace, it may

be turning the corner, fine paper demand is improving as schools and

offices reopen and packaging paper demand remains robust.

Surge in commodities and the SHFE

Pulp prices followed other commodities higher, supported by the

demand recovery, supply-side constraints and a weaker US dollar.

The impact on pulp has been amplified by the Shanghai Futures

Exchange. China’s recent focus on tempering commodity gains rattled

markets and, combined with weak end-use product prices, has

pushed pulp prices lower.

Focus shifts to “new normal” as demand crosscurrents settle lower


Rest of World30%

China38%

US10%

W. Europe22%

Regional share of market pulp demand, 2020

Graphic papers24%

Tissue42%

Cartonboard & specialites

31%

All other

End-use share of market pulp demand, 2020

• China’s economic recovery is strong

but slowing with growing importance of

domestic consumption.

• Recovery well underway in developed

economies.

• Demand has improved from the depths

of the recession, but uncertainty

around structural changes to consumer

behavior remain.

• Demand for tissue slowing from

frenzied pace of 2020 as graphic

papers recover from pandemic lows

and cartonboard is supported by e-

commerce and bans on single-use

plastics.

• Graphic paper demand bolstered in

early 2021 by the 100th anniversary of

the CPC, but plans to reel in the

tutoring industry in China weigh on

demand in the second half.

Demand drivers

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2015 2016 2017 2018 2019 2020

Chinese pulp imports, million tonnes

BSK BHK MEC UKP

Chinese pulp imports continue to grow despite pandemic and supply-side disruptions


2020 growth (thousand tonnes)

BHK: +1,965 (+17%)

BSK: -49 (-0.5%)

MEC: +249 (+16%)

UKP: +257 (+31%)

2021 June YTD growth

(thousand tonnes)

BHK: +619 (+10%)

BSK: +28 (+1.0%)

MEC: +9 (+1%)

UKP: +82 (+16%)

0.0

0.5

1.0

1.5

2.0

2.5

2017 2018 2019 2020 2021 (YTD Annualized)

Dow

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illio

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Downtime Other supply constraints Historical average

Unexpected downtime and delayed maintenance tightened supply in late 2020 and into 2021


Supply chain bottlenecks are disrupting trade flows, extending delivery times and driving delivery costs higher


Source: NY Times

https://www.nytimes.com/2021/09/23/business/cargo-ships-supply-chain.html

A growing number of massive container ships have been

forced to anchor outside of the Port of Los Angeles

NO END IN SIGHT FOR

LOGISTICS CHALLENGES

• There were a record 73 cargo vessels

anchored off the Southern California

cost on September 19 and a similar

situation has unfolded in China due to

the temporary closure of the Ningbo

port.

• Containers remain in short supply,

shipping time significantly delayed,

and freight rates continue to spiral

higher

• This add uncertainty to commodity

markets, disrupting trade flows and

makes inventory management

considerably more challenging

Producer inventories on the rise, but are a lagging indicator and difficult to interpret due to logistics challenges


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 20 21

Producer inventories, days of supply

BHK Average BHK (2004-10 = 36.4, 2011-18 = 41.6) BSK Average BSK (2011-18 = 29.9, 2019-20 = 38)

Chinese port inventories seem elevated, but context matters

36%China accounts for 36% or 24 million

tonnes of global market pulp demand

>2 million mtChina imports an average of more

than 2 million tonnes of pulp each

month


1.8 million mtInventory at the major Chinese ports of

Qingdao and Changshu remain elevated

compared to history, but likely not more

than a week’s worth of excess supply –

if any at all

0

500

1,000

1,500

2,000

2,500

Chinese port inventories, thousand tonnes

Qingdao Changshu Average

The speculative pressure that propelled the Shanghai futures market higher in early 2021 has eased


500

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1,000

1,100

Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21

US dollars per tonne

SFE BSK contract excluding VAT, logistics NBSK import price Domestic resale excluding VAT, logistics

Pulp prices in China went vertical, but have settled lower from record highs


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

500

600

700

800

900

1,000

1,100

11 12 13 14 15 16 17 18 19 20 21

NBSK prices in China, US dollars per tonne

NBSK domestic resale¹ NBSK net import

400

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550

600

650

700

750

800

850

11 12 13 14 15 16 17 18 19 20 21

BEK prices in China, US dollars per tonne

BEK domestic resale¹ BEK net import

10

Sizable NBSK premium supportive of additional BEK usage

PERSISTENT OUTSIZED

SPREAD BETWEEN NBSK

AND BEK

• The spread remains well above the

cash cost differential, making BEK

more attractive on the margin

• All easy shifts to higher BHK usage

have likely been made, but tight

end-user margins continue to

encourage more BHK consumption

• Large NBSK premium and easing

pulp demand could add downward

pressure to NBSK prices in the near

term

• Reduced BSK availability and

growing cost differential in the

medium to longer term may result in

the average differential expanding


-50

0

50

100

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200

250

10 11 12 13 14 15 16 17 18 19 20 21

Difference between net NBSK and BEK prices delivered to ChinaUS dollars per tonne

NBSK-BEK

Producers beginning to shift volumes to US and Europe as China premium disappears


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500

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400

600

800

1,000

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10 11 12 13 14 15 16 17 18 19 20 21

Net NBSK prices delivered to the USUS dollars per tonne

US-China (R) US China

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-100

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500

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Net BEK prices delivered to the USUS dollars per tonne

US-China (R) US China

If this is a bubble, what could make it burst?


Downside risks to current prices

• End-user margins remain squeezed

• Transitory factors revert to “normal”

• Reacceleration of virus spread

• Graphic paper decline reaccelerates

• Timing difference between orders/demand

and deliveries → intensifying seasonality

-100

-50

0

50

100

150

200

250

300

350

China Europe US

Price change from October 2020-August 2021

NBSK BEK UFS TIS BXD

End-users’ margins squeezed as pulp price gains outpace end-use product prices


Key factors for the pulp market in the medium to longer term


Demand

• Bans on single-use plastic

• Greater at-home tissue usage

• Graphic paper’s share of demand

falls

• Less availability of high-grade RCP

(decline in graphics)

• China sorting out its fiber needs after

RCP import ban

• Additional RCP policy changes

Supply

• DP growth, focus on certified fiber

and recycled textiles

• Wood chip supply in Asia?

• Greater availability of hardwood fiber

• Chip supply in British Columbia

-25

-20

-15

-10

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0

5

10

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25

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

World paper and paperboard production, million tonnes

Strong recovery underway in world total paper and paperboard production


SOP supply decline causes rebalancing of fiber demand

Tissue, 2.5, 58%P&W, 1.0, 23%

Containerboard, 0.2, 5%

Boxboard and other, 0.6, 14%

SOP supply declined by about 4.3 million tonnes in 2020Million tonnes, share of the decline

• World demand for P&W plunged by 13.5 million

tonnes in 2020, and demand for woodfree paper fell

by about 9.3 million tonnes—about 4.3 million tonnes

of SOP supply in 2020

• Together with the shift from AfH to consumer tissue

and the decline in SOP supply, virgin fiber

consumption in tissue grew an estimated 3 million

tonnes in 2020

• Virgin fiber consumption in boxboard also increased,

expanding by an estimated 500,000 tonnes

• Virgin fiber consumption in the containerboard sector

increased by about 1.6 million tonnes thanks in part to

the increase in kraftliner production (about 900,000

tonnes) and the SOP supply decline (for white-top

containerboard)


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-500

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1,000

1,500

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2,500

3,000

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4,000

2016 2017 2018 2019 2020 2021 2022

World market pulp capacity expansion, thousand tonnes

Latin America All other

Market pulp capacity investment focused on Latin America

THREE MAJOR PROJECTS IN

LATIN AMERICA TO START UP

THROUGH 2022

• Dearth of planned projects in 2019-20,

continued conversions to specialty

grades and forward integration

resulted in limited capacity gains.

• Bracell Star Project in Brazil and

Arauco MAPA in Chile will ramp up in

late 2021 and ultimately add 4.1

million tonnes of BEK market pulp.

• These projects will be followed closely

by the startup of UPM’s 2.1 million

tonne Paso de los Toros mill in

Uruguay in mid-2022.

• Beyond 2022, Suzano has announced

plans for its 2.3 million tonne Cerrado

project in Brazil, and there are several

other projects under consideration.


Many BSK projects planned starting in 2021


Company Mill Country Project timeline CapacityThousand tonnes

Heinzel Pols Austria Upgrade pulp line w/swing capability UKP, 2021 40

Mercer Stendal Germany Debottleneck, 2021 80

Domtar Ashdown USA Conversion from UFS and integrated BHK, 2021 155

Ilim Ust Illimsk Russia New integrated 600,000 tonne KLB and recovery boiler, 2022 130

Sodra Cell Varo Sweden Capacity expansion toward 850,000 tonnes total, 2023-24 150

Daio Paper Mishima Japan Conversion to from MEC to fluff, 2022 90

Stora Enso Enocell Finland Grade switch 100

Metsä Fibre Kemi Finland Brownfield, BSK/UKP, net of old mill closure, 2023-24 800

KaiCell Paltamo Finland Greenfield, BSK/BHK, 2023-24? 510

Paper Excellence Prince Albert Canada Restart, 2023 350

Boreal Bioref Kemijärvi Finland Greenfield, BSK/UKP/DP swing, 2024 700

Svetlogorsk Svetlogorsk Belarus Forward integration to kraft paper, 2023 -100

Sveza Vologda? Russia Greenfield, 2024-25? 300

CPC/Chentong Amursk Russia Greenfield, 2024-25? 500

Segezha Lososibirsky Russia Greenfield, BSK/BHK/UKP/DP?, 2024 560

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

Shanying Jilin China Greenfield, 2022-24, BSK/BHK 600

Net total, 2021-25 5,365

19

Even more BHK capacity planned starting in 2021


Company Mill Country Project CapacityThousand tonnes

Arauco Valdivia Chile Conversion to DP, 2020-24 -550

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

ND Paper Rumford USA Conversion to UKP, 2021 -40

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

RGE/Bracell Lençóis Paulista Brazil New swing DP/BHK mill, 2021 2,800

Oji Nantong China Expansion before forward integration, 2021 95

Liansheng Paper Zhangzhou China Greenfield, 2023, to be integrated in 2025 850

Sun Paper Beihai China Greenfield integrated, affiliated, 2021 170

Shanying Jilin China Greenfield, BHK/BSK, 2022 300

Oji Nantong China Forward integration, 2022 -95

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

Stora Enso Enocell Finland Grade switch, 2022 170

Sveza Vologda? Russia Greenfield, 2024-25? 1,000

Metsä Fibre Kemi Finland Net of old mill closure, 2023 90

Asia Symbol Rizhao China Debottleneck and forward integration, 2023 -335

Asia Symbol Rizhao China Forward integration, 2024 -255

Shanying Jilin China Expansion 300

Paracel Concepcion Paraguay Greenfield, 2023-26 1,500

Euca Energy Alto Araguiai Brazil Greenfield, 2023-24 2,000

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

KaiCell Fibers Paltamo Finland Greenfield,2023-24? 90

Segezha Lesosibirsky Russia Greenfield, 2024 140

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

Suzano Tres Lagoas III Brazil New line, 2023-24 1,700

Suzano Cerrado Brazil Greenfield, 2024 2,300

Liansheng Paper Zhangzhou China Forward integration -850

Net total, 2021-25 17,340

World market pulp demand/supply summary


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2015 2016 2017 2018 2019 2020 2021 2022

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Demand Capacity Demand/capacity (R)

21

Pulp forecast summary

▪ Base-case forecast calls for cyclical

demand growth to carry into next year

▪ Unexpected supply-side disruptions,

including shipping challenges and

upcoming capacity expansion, will

influence ordering in the near term

▪ Three massive new capacity

expansion projects will push supply

ahead of demand growth by mid-2022

▪ Risks largely revolve around the

pandemic trajectory, the timing and

magnitude of any seasonal

improvement in demand, inventory

levels, and the pace and timing of

upcoming capacity expansion


Thank you!


Date post:	16-Oct-2021
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