vp, fiber economic analysis - fastmarkets risi...2018/11/27 · vp, fiber economic analysis world...

2019 | Fastmarkets | World Pulp Outlook 1

David FortinVP, Fiber Economic Analysis

World Pulp OutlookAll Eyes on Inventories

2

Agenda

2019 | Fastmarkets | World Pulp Outlook

• Review of current market conditions• Supply and demand outlook• Forecast summary and risks to the forecast

Recent market conditions

Demand falters as supply disruptions easeAfter the strong uptick in supply disruptions through much of 2018, markets are adjusting as supply normalizes

Producer inventories reach record levelsCombination of weak demand and additional supply driving inventories to record levels

What goes up must come downDemand improvement and inventory correction are key to the next swing in pulp prices


Impact of Chinese import policies behind us for pulp China is expected to continue toward zero imports of RCP by the end of 2020, but impacts on the fiber markets are heavily weighted toward RCP and recycled pulp

Pulp markets recently completed an historical run…


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Mar-16 to Oct-18 Dec-85 to Mar-90

Dec-93 to Nov-95

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Mar-16 to Oct-18Dec-85 to Mar-90

Chinese wood pulp import growth slows

WOOD PULP IMPORTS ACCELERATED IN 2017• Growth was steady and strong

during the last decade plus

• Ratcheted higher in 2017 as markets reacted to new Chinese policies

• Settled back lower once limited market share gains were made

• Weak demand and high stocks resulted in first quarter 2019 imports down 16% from 2018

• Only marginal upward pressure on wood pulp imports moving forward


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Monthly bleached kraft pulp imports to China

BSK BHK

China stalls as global economic growth slows

GLOBAL GROWTH DECELERATING• Developed countries still growing

but at a slower rate

• This is not unexpected given the length of this business cycle

• New leaders, policies and the rise of protectionism have both stimulated growth and created headwinds

• The Chinese economy has not regained upward momentum yet


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Purchasing manager’s indices

Official Caixin Global

Exchange rates matter, and not just on the margin


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Price index of BEK delivered to Europe

BRL USD EUR

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Price index of BEK delivered to China

BRL USD RMB

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Downtime Average Demand growth

Unexpected downtime settles lower as demand stalls


Producer inventories reach a record high


Source: PPPC, Fastmarkets RISI.

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Produce inventories, days of supply

BHK Average BHK (2004-10 = 36.4, 2011-18 = 42.7) BSK Average BSK (29.7)

Shipments from Brazil to China hit record level in May


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Brazil BHK exports to China, thousand tonnes

Inventory correction is key to the next price swing

INVENTORIES BUILD IN CHINA AS DEMAND SLOWS• Record pulp production by some

producers in the third quarter arrived just as demand faltered in China

• Inventory data always difficult to read accurately

• Not just pulp inventories that have grown, also paper and board

• Key to change in price direction is timing of inventory correction


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China port inventories, thousand tonnes

Qingdao Changshu

Domestic pulp prices in China searching for a bottom


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

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NBSK prices in China, $/tonne

NBSK domestic resale* NBSK net import

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BEK prices in China, $/tonne

BEK domestic resale* BEK net import

NBSK premium to BEK falls as prices tumble

THE OUTSIZED SPREAD BETWEEN NBSK AND BEKHAS CORRECTED• The large spread allowed BSK to

fall harder and faster at first

• The spread is now below the cash cost differential, making NBSK more attractive on the margin

• There is a chance that NBSK may firm and move higher before BEK if/when prices meaningfully recover


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Effective list prices delivered to ChinaUS dollars per tonne

Spread BSK-BHK (R) NBSK BEK Average spread

Spread between US and China remains large


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Net NBSK pricesUS dollars per tonne

Spread US-CN (R) Del. US Del. China Average spread

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Net BEK pricesUS dollars per tonne

Spread US-CN (R) Del. US Del. China Average spread

Futures market suggests bottom could be near

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Shanghai Futures September pulp contract, volume and price (RMB)

Volume Price (R)


But what goes up must come downNBSK delivered to Northern Europe


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Consecutive months

Oct-18 topresent

Mar-90 to Oct-91

Nov-95 to Apr-96

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Consecutive months

Oct-18 topresent

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Outlook for market pulp

End-use markets remain relatively weakSecular decline in graphic papers, weak macroeconomic environment and RCP policy changes are weighing on global paper and board production.

Limited capacity gains until 2021The list of proposed projects for the 2021-2022 time frame is long, but only a few projects will actually move forward and no large capacity additions are expected until 2021.

Pulp markets could remain soft into 2020There is plenty of uncertainty around the demand outlook. However, if the global economy slows further, the pulp market may not grow much tighter until 2021.


Prices hit the high end of the industry cost curve The prices of both BSK and BHK have fallen to the cash costs of high-cost producers and have started to result in market-related downtime.

17

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


■ Africa ■ Asia ■ Europe ■ Latin America ■ North America

Sheet0

Cost Date: Q4 2018

Balance Date: Q2 2019

Delivered Cost: Shanghai

Region: Global

Grade/Product: Bleached Hardwood Kraft Pulp

■ Africa■ Asia■ Europe■ Latin America■ North America

This document is authorized for use only by Patrick Cavanagh ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or Call +866.271.8525 for additional copies.

BSK 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


■ Asia ■ Europe ■ Latin America ■ North America ■ Oceania

Sheet0

Cost Date: Q4 2018

Balance Date: Q1 2019

Delivered Cost: Shanghai

Region: Global

Grade/Product: Bleached Softwood Kraft Pulp

■ Asia■ Europe■ Latin America■ North America■ Oceania

This document is authorized for use only by Patrick Cavanagh ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or Call +866.271.8525 for additional copies.

World paper and board production has been weak

PACKAGING AND TISSUE KEY TO GROWTH IN PULP • Packaging paper accounts for two-thirds of

paper production and its share is growing

• Tissue accounts for just 9% of production, but its share is growing as well

• Graphic paper will continue its secular decline due to substitution to electronic media

• China is and will remain the largest paper and board producing region in the world

• The pulp and paper industry in China faces increased challenges due to a lack of fiber because of both natural and policy reasons

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2017 2018 2019 2020 2021

Growth in world paper and board production by gradeMillion tonnes

Paper packaging and specialties TissueGraphic papers % Ch total paper and board (R)


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2017 2018 2019 2020 2021

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Limited market pulp capacity expansion until 2021


Pulp market could remain weaker for longer


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Shipment/capacity adj. Shipment/capacity ratio (R)

Forecast summary ▪ Base case forecast calls for soft landing in China

▪ Demand expected to inch ahead of supply again in 2020 as inventory correction winds down

▪ This will result in slightly tighter markets and limited upward pressure on prices into 2020

▪ Risks largely revolve around inventory levels, the health of the Chinese economy, the escalating trade war with the US and a looming recession


Thank you for your attention


David Fortin, VP Fiber Economic Analysis

[email protected]

Fastmarkets RISI

24

World Pulp Outlook�All Eyes on InventoriesAgendaRecent market conditionsPulp markets recently completed an historical run…Chinese wood pulp import growth slowsChina stalls as global economic growth slowsExchange rates matter, and not just on the marginUnexpected downtime settles lower as demand stallsProducer inventories reach a record highShipments from Brazil to China hit record level in MayInventory correction is key to the next price swingDomestic pulp prices in China searching for a bottomNBSK premium to BEK falls as prices tumbleSpread between US and China remains largeFutures market suggests bottom could be nearBut what goes up must come down��NBSK delivered to Northern EuropeOutlook for market pulpBHK cash cost curve from Mill IntelligenceBSK cash cost curve from Mill IntelligenceWorld paper and board production has been weakLimited market pulp capacity expansion until 2021Pulp market could remain weaker for longerSlide Number 23Thank you for your attention

vp, fiber economic analysis - fastmarkets risi...2018/11/27 · vp, fiber economic analysis world...

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