Global Pulp Outlook September 2020 - David Fortin - Forest Products Industry Events | RISI
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Global Pulp Outlook September 2020 David Fortin VP, Fiber Economic Analysis 2020 | Fastmarkets | Global Pulp Outlook 1
Spread of COVID-19 re-accelerates in the US
The ongoing spread of the virus in the US has kept some US
schools from reopening this fall, which will have a direct impact on
the reopening of offices and temper any rebound in UFS demand.
There have also been outbreaks in Europe and elsewhere.
Pulp consumption softens as the Crosscurrents for demand settle lower
China’s nascent recovery has been juxtaposed by historical
frenzied pace in tissue eases and declines in the US and European economies. Meanwhile, the
frenzied demand for tissue and packaging has eased as the
graphic paper hits cycle lows rebound expected for graphic papers looks less robust.
Supply-side disruptions offset demand declines
Unanticipated supply disruptions remained elevated again this
year and helped to offset some of the weakness in demand.
Further supply-side discipline and/or disruptions will be key to
near-term market dynamics.
Inventories remain elevated
The uncertainty that has gripped the markets since the start of the
pandemic has yet to dissipate and has been exacerbated by the
deterioration in the US-China relationship. This along with elevated
inventories will continue to influence buying decisions.
2020 | Fastmarkets | Global Pulp Outlook 2
Industrial markets improving, but from very low levels
Purchasing managers indices
55.0
53.0
51.0
49.0
47.0
45.0
43.0
41.0
39.0
37.0
35.0
12 13 14 15 16 17 18 19 20
Official Caixin Global
2020 | Fastmarkets | Global Pulp Outlook 3
Demand crosscurrents settle lower
Regional share of market pulp demand End-use share of market pulp demand
W. Europe All other Weaker demand
Rest of Cartonboard &
24% World specialites Graphic • China recovering, but slowly
30% 25% papers
30% • Developed economies collapse, but
near-term outlook might be less dire
than anticipated
• Demand softens seasonally during
the summer months in the Northern
Hemisphere
• Tissue growth slowed as graphic
papers plummeted
US
10%
China
36%
Tissue
40%
2020 | Fastmarkets | Global Pulp Outlook 4
Pandemic forced a jaw-dropping collapse in world
paper and board production
Growth in world paper and board production Growth in world paper and board production
Thousand tonnes
8.0%
8,000
6.0% 6,000
4,000
4.0% 2,000
2.0% 0
-2,000
0.0% -4,000
-6,000
-2.0%
-8,000
-4.0% -10,000
-12,000
-6.0%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Printing & writing
% Ch total paper and board (pre-COVID) Cartonboard, wrapping and other paper and board
% Ch total paper and board (post-COVID) Tissue
2020 | Fastmarkets | Global Pulp Outlook 5
Market pulp demand outlook
3,000
2,000
Demand growth, thousand tonnes
1,000
0
-1,000
-2,000
-3,000
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2020 | Fastmarkets | Global Pulp Outlook 6
Unexpected downtime continues near historical highs
3.0
2.5
Downtime, million tonnes
2.0
1.5
1.0
0.5
0.0
2017 2018 2019 Annualized July 2020 YTD
Downtime Average
2020 | Fastmarkets | Global Pulp Outlook 7Producer inventories nearly balanced by the end of 2019,
but BSK jumped higher this summer
Producer inventories, days of supply
75
65
55
45
35
25
15
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
BHK Average BHK (2004-10 = 36.4, 2011-18 = 41.6) BSK Average BSK (29.9)
Source: PPPC, Fastmarkets RISI.
2020 | Fastmarkets | Global Pulp Outlook 8Chinese pulp imports continue to grow despite
pandemic and supply-side disruptions
Chinese pulp imports, year-to-date through July, thousand tonnes
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2018 2019 2020
Brazil Canada Indonesia Chile Finland
2020 | Fastmarkets | Global Pulp Outlook 9The pandemic has slowed inventory
rebalancing
Chinese port inventories, thousand tonnes
1,400
1,200 36%
China accounts for 36% or 24 million
1,000 tonnes of global market pulp demand
800
600 2 million mt
China imports an average of nearly
400 2 million tonnes of pulp each month
200
0 >700,000 mt
The major Chinese ports of Qingdao
and Changshu are already carrying
Qingdao Changshu excess inventory volumes
2020 | Fastmarkets | Global Pulp Outlook 10China domestic pulp prices bounce off new cycle lows
NBSK prices in China, US dollars per tonne BEK prices in China, US dollars per tonne
1,000 850
950 800
900 750
850
700
800
650
750
600
700
550
650
600 500
550 450
500 400
11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20
NBSK domestic resale¹ NBSK net import BEK domestic resale¹ BEK net import
1. Reflects net renminbi domestic resale price converted to US dollars, excluding VAT and logistics costs.
2020 | Fastmarkets | Global Pulp Outlook 11Shanghai futures market contract accelerates higher
Shanghai Futures Exchange December 2020 BSK pulp contract
600,000 5,200
500,000 5,000
Roughly
equivalent to
400,000 $607/tonne 4,800
Price (RMB)
Volume
300,000 4,600
200,000 4,400
100,000 4,200
0 4,000
Jul-20 Jul-20 Jul-20 Jul-20 Jul-20 Aug-20 Aug-20 Aug-20 Aug-20 Sep-20
Volume Price (R)
2020 | Fastmarkets | Global Pulp Outlook 12NBSK premium to BEK remains elevated
THE SPREAD BETWEEN Net prices delivered to China
US dollars per tonne
NBSK AND BEK IS WELL
250
ABOVE AVERAGE
• The large spread in 2018 allowed
BSK to fall harder and faster at first 200
• The spread is now well above the
cash cost differential, making BEK 150
more attractive on the margin
• All easy shifts to higher BHK usage
100
have likely been made
• A weak market and reduced BSK
availability may result in the spread 50
remaining larger for longer
0
10 11 12 13 14 15 16 17 18 19 20
-50
NBSK-BEK
2020 | Fastmarkets | Global Pulp Outlook 13Spread between US and China remains large
Net NBSK prices Net BEK prices
US dollars per tonne US dollars per tonne
1,000 500 1,000 500
900 900
400 400
800 800
700 300 700 300
600 600
200 200
500 500
100 100
400 400
300 0 300 0
200 200
-100 -100
100 100
0 -200 0 -200
10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20
US-China (R) US China US-China (R) US China
2020 | Fastmarkets | Global Pulp Outlook 14BSK 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 available fiber and higher fiber costs 2020 | Fastmarkets | Global Pulp Outlook 15
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 • Price of imported wood chips will continue to play a key role in determining competitiveness of pulp mills in China 2020 | Fastmarkets | Global Pulp Outlook 16
Many BSK projects announced after 2020
Company Mill Country Project Capacity
Thousand tonnes
Arauco Horcones Chile Rebuild, 2021 35
Paper Excellence Prince Albert Canada Restart, 2021 ? 350
Mercer Stendal Germany Debottleneck, 2021 80
Domtar Ashdown USA Conversion from UFS, 2021 155
Ilim Ust Illimsk Russia Rebuild, 2021 130
Sodra Cell Varo Sweden Capacity expansion toward 850k total, 2022 150
Daio Paper Mishima Japan Conversion to from MEC to fluff, 2022 90
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
Svetlogorsk Svetlogorsk Belarus Forward integration to kraft paper -100
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
Net total, 2021-2025 5,860
2020 | Fastmarkets | Global Pulp Outlook 17Many BHK projects announced after 2020
Company Mill Country Project Capacity
Thousand tonnes
Mondi Ružomberok Slovakia Forward integration to white top, 2021 -50
Chenming Huanggang China Conversion to DP, 2021-23 -350
Arauco Horcones Chile Net of old line closure, 2021 1,270
RGE/Bracell Lençóis Paulista Brazil New swing DP/BHK line, 2021 1,250
Oji Nantong China Forward integration to tissue, 2021 -45
Sun Paper Beihai China Greenfield integrated mill, 2021 170
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 (delayed), 2024 ? 340
Suzano ? Brazil Multiple options, 2023 2,300
Net total, 2021-2024 12,575+
2020 | Fastmarkets | Global Pulp Outlook 18Market pulp capacity expansion in Latin America drives growth in supply 2020 | Fastmarkets | Global Pulp Outlook 19
World market pulp demand/supply summary
4,000 0.92
3,000 0.91
Growth, thousand tonnes
2,000 0.90
1,000 0.89
0 0.88
-1,000 0.87
-2,000 0.86
-3,000 0.85
2015 2016 2017 2018 2019 2020 2021 2022
Demand Capacity Demand/capacity (R)
2020 | Fastmarkets | Global Pulp Outlook 20Forecast summary
▪ Base case forecast calls for a
tempered recovery in the fourth
quarter, accelerating into 2021
▪ Demand decline has been offset to
a some extent by unexpected
supply-side disruptions
▪ Inventory overhang and an anemic
macroeconomic environment will
keep markets weaker for longer
▪ Risks largely revolve around the
duration of the global recession,
inventory levels, relations between
the US and China, and supply-side
disruptions
2020 | Fastmarkets | Global Pulp Outlook 21Thank you! 2020 | Fastmarkets | Global Pulp Outlook 22
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