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
32021 | Fastmarkets | Global Pulp Outlook
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
0
2
4
6
8
10
12
14
16
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
2021 | Fastmarkets | Global Pulp Outlook 4
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
ntim
e, m
illio
n to
nn
es
Downtime Other supply constraints Historical average
Unexpected downtime and delayed maintenance tightened supply in late 2020 and into 2021
2020 | Fastmarkets | Global Pulp Outlook 5
Supply chain bottlenecks are disrupting trade flows, extending delivery times and driving delivery costs higher
2021 | Fastmarkets | Global Pulp Outlook 6
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
2021 | Fastmarkets | Global Pulp Outlook 7
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
82021 | Fastmarkets | Global Pulp Outlook
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
2021 | Fastmarkets | Global Pulp Outlook 9
500
600
700
800
900
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
2021 | Fastmarkets | Global Pulp Outlook
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
450
500
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
2021 | Fastmarkets | Global Pulp Outlook 11
-50
0
50
100
150
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
2021 | Fastmarkets | Global Pulp Outlook 12
-200
-100
0
100
200
300
400
500
0
200
400
600
800
1,000
1,200
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
-200
-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 21
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?
2021 | Fastmarkets | Global Pulp Outlook 13
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
2021 | Fastmarkets | Global Pulp Outlook 14
Key factors for the pulp market in the medium to longer term
2021 | Fastmarkets | Global Pulp Outlook 15
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
-5
0
5
10
15
20
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
2021 | Fastmarkets | Global Pulp Outlook 16
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)
172021 | Fastmarkets | Global Pulp Outlook
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
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.
2021 | Fastmarkets | Global Pulp Outlook 18
Many BSK projects planned starting in 2021
2021 | Fastmarkets | Global Pulp Outlook
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
2021 | Fastmarkets | Global Pulp Outlook 20
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
2021 | Fastmarkets | Global Pulp Outlook
0.85
0.86
0.87
0.88
0.89
0.90
0.91
0.92
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
2015 2016 2017 2018 2019 2020 2021 2022
Gro
wth
, th
ou
sa
nd
to
nn
es
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
2021 | Fastmarkets | Global Pulp Outlook 22
Thank you!
232021 | Fastmarkets | Global Pulp Outlook