Market pulp demand weathers the storms
As we settle into new ways of working and adapting to life with COVID-19 influencing every aspect of life, the latest results from the Nordic market pulp producers point to a strong first quarter of 2020. While pulp exports to China from the Nordic suppliers were stable during the first quarter of this year, European deliveries were higher than expected. Some of this boost was corona-related as demand for toilet tissue and hygiene products spiked, but not all; European customers were mostly reporting full order books before the crisis hit.
Södra’s exports to China are only a small part of our business so we were relatively unaffected by the changes in demand there. The major challenge for shipments to China during the first quarter was logistics and here, our close relationships with our local agents in Asia proved advantageous in ensuring business as usual.
For the moment, demand for market pulp remains strong especially from Europe’s tissue mills. But we foresee a dip in demand during late May and June as buying habits return to normal and printing/writing producers are likely to suffer from weaker demand for their products as offices remain shut and economies around the world continue to decline.
The printings and writings sector has been in long-term decline for over a decade, as the reading habits of younger generations leapfrog print to screen. The question is now whether the large decline we see this year is in some way reversible, or if the shift to an even greater degree of digitalization brought about by Covid-19 will prove irreversible. And in my opinion the changes in our working or living habits is more of a permanent character.
One of the consequences of office closures across Europe and indeed the rest of the world has been a decline in the availability of high-quality recovered paper, leading tissue producers in particular to turn to market pulp to fill the gap. This is likely to remain the case for some months to come. And this is one of several reasons why, despite paper demand possibly declining, we expect demand for market pulp in volume terms to remain stronger than if we only look to the demand development in printing and writing papers.
On the supply side, we have seen a global reduction in paper production so far this year of around three million tonnes, reducing market pulp demand for these products by around 300,000 tonnes. But at the same time, global market pulp production has been curtailed by 400,000 tonnes during the first quarter of the year. Some of this production curtailment was corona related but there were other factors too, such as a shortage of sawmill chips at Canadian mills and technical failures. This situation has created a tighter pulp market so far this year than at the end of 2019.
For the moment, our stock levels are low and our order books are healthy. We will be planning maintenance stoppages at all three of our mills during the autumn, but all are operating well and we will work hard during the summer to manage inventories to ensure smooth deliveries for the rest of the year.
None of us knows what the rest of the year will bring and how the gradual easing of restrictions across Europe will develop. We all look forward to returning to more familiar patterns and to appreciating again the small details of life that we took for granted only some months ago. But in the meantime, we continue to ensure that one thing you can count on is our pulp.
Knut Omholt, Market Research Manager
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