The pulp market: Unprecedented times

In addition to the strong world economics strengthening the general demand for market pulp, several factors have contributed to the incredibly tight market pulp supply situation we’ve been witnessing.

Unforeseen stoppages at several large market pulp producers for a variety of reasons, led to a fall in worldwide pulp production of somewhere between 1 to 1.5 million tonnes in 2017. That alone could have been enough to disrupt the balance of the global pulp market, but add in some dramatic changes in China and we got a market situation not witnessed on this side of the millennium. In fact, have we ever before seen a political decision making such a huge impact on world pulp trading in such a short span of time? 

The situation in China changes quite rapidly. Whilst the economy has slowed somewhat from the heady days of double-digit growth, it is still seeing very strong economic growth, with almost 7% growth last year and a forecast of 6.5% for 2018. Pulp and paper production in the country has been growing steadily, up by 3% last year alone, to some 115 million tonnes in total.  China is today the world’s single largest country for paper production, and the largest importing country of market pulp and recycled paper. China imports around 25-30 million tonnes of recycled paper per year to feed its rapidly-expanding paper industry, up from a negligible amount just 20 years ago.  

However, in 2017 the Chinese government announced a ban on imports of mixed waste paper (see article below) and a strengthening of the lower limits for impurities in imported recovered paper. These measures, together with a stricter policy on the allowance of import permits, are already having a significant impact on the import of recovered papers to China, resulting in a fibre deficit in the Chinese market of some five to four million tonnes – just in the last three months of 2017. Although this deficit will not be dominantly replaced by market pulp, for both technical and economic reasons, the surge for fibres in China has created a demand situation where almost any pulp is attractive. 

The situation in China has resulted in an unusual market situation where we have seen pulp prices increase much more steeply in China than in Europe in real terms. This has made suppliers move tonnage to China and thus the Chinese situation also creates a shortage of volumes and increasing prices also for market pulp in Europe.  

It will be some time before China develops the infrastructure needed to increase significantly its domestic recycled fibre collection, so it’s hard to see an end to this acute fibre deficit in the short term, a predicament which has rippled through the market globally and made itself felt like a kick in the teeth for the world pulp market. 

At Södra we recognise these are unprecedented times. We are prioritising our current contracted customers globally in this extraordinarily tight market.  In the long term, we will consider our presence in Asia, as well as growing with our existing customers, but for the moment our allegiance is firmly to existing customers with our mills working around the clock to optimise output and guarantee deliveries. 

Knut Omholt
Manger Market Research