Market analysis: A more stable horizon
What a difference a year makes. The softwood pulp market today looks very different to this time last year, when the perfect storm of strong demand and lower supply caused by a variety of factors across the globe caused prices to reach record levels.
This year, month by month, we have seen prices readjust in the opposite direction as European and Chinese buyers for various reasons reduced their demand, and supply remained largely uninterrupted. But now as we approach the end of the year, the market is showing signs of stability and we seem to be very close to the end of the latest downward price cycle.
Small changes, big impact
On the supply side, there have not been any dramatic closures but little and often makes a difference, such as for example mills taking more time over planned maintenance stoppages than they would when prices are more reasonable. Current low prices cause high-cost producers around the world to run at a loss, and now even mid-cost producers are probably feeling that it makes no financial sense to deliver to some high-cost destinations.
After five years of several expansion projects at some of the major European softwood market pulp producers, supply in Europe is clearly larger than Europe’s demand for softwood pulp. In fact, around a third of all softwood market pulp produced in Europe today is exported outside the EU, so even small changes in the non-European markets can have a big impact on the EU market. The supply of softwood pulp in Europe could also be further impacted in years to come by infestations of the tiny, but very hungry, bark beetle. In the short term this may not be such a problem, but what about the longer perspective?
Buyers asking for more
Demand, meanwhile, is being boosted by the Chinese importing more softwood pulp than they did a year ago. They are commercially sensitive and will increase their stocks while prices are low, which we have been seeing these past few months. It’s difficult to say where the Chinese economy is heading. Although it has undeniably slowed, it is still nonetheless growing at a higher rate than most economies in the world. The effects of the trade war with the U.S. have still to be felt long term so predictions are futile, but in the short term, we are seeing an increase in Chinese demand for softwood.
In Europe political uncertainty remains high and the major European economies are apparently stagnating. Paper production in Europe has been down slightly so far this year, but papermakers have started asking for additional pulp tonnage which did not happen earlier in the year.
There are also several new paper machines due to come on stream in the coming year, and with several softwood pulp producers switching from softwood paper pulp to dissolving pulp, the signs are pointing at a period of stability and equilibrium – for now at least.
Knut Omholt, Market Research Manager