Pulp Cycle Bottom Here's a recent report from TD. Pulp cycle bottom is in. A lot of pulp and paper capacity was permanently closed over the past year. The next few years could be significantly cash profitable for the producers that were able to hang on.
"The Pulp and Paper Products Council (PPPC) released "World-20" market pulp data for July today (data from producers representing 82% of global paper-grade chemical market pulp capacity). July shipments grew 6.0% on a year-over-year (y/y) basis, the second consecutive positive y/y comp following negative y/y comparisons over the preceding six months. Volume growth for softwood pulp (up 3.8% y/y versus the YTD decline of 1.5%) was complemented by gains for hardwood pulp (up 9.5% y/y versus the YTD increase of 1.1%). Aggregate Julyending mill inventories were unchanged m/m at 48 days of supply (above the long-term average). Softwood supplies remain elevated, but days of supply declined m/m.
Impact: SLIGHTLY POSITIVE
Encouraging trends are evident in the July statistics, including solid uptake from China (which represents approximately one-third of aggregate shipments), a much smaller-than-normal seasonal increase in aggregate mill stocks, and moderating (albeit still bloated) softwood pulp mill inventories. Overall, the weak dynamics which have characterized most of 2023 are dissipating and the balance of power is slowly shifting away from buyers. North American NBSK pulp spot market price erosion has slowed and current spot prices are approaching cash cost levels for high-cost mills. Prices for NBSK pulp imported into China have improved 3% over the past six weeks. We do not anticipate a rapid pulp price recovery given weak overall paper demand, but believe that the worst of this cycle is behind us.
Pulp producers in our coverage universe: MERC; CFX/CFP; WFG.
Key Points for July Data
Volume gains in July were driven by China and offset weakness in Western Europe and North America. Shipments to China increased 35.7% y/y, the third consecutive double-digit y/y comp and the second-highest absolute level of shipments since January 2020 (behind the June 2023 record).
Softwood days of supply decreased four days m/m to 47 days (still above the longterm average of 32 days). Hardwood days of supply increased two days m/m to 48 days (seven days above the long-term average). Mill inventories increased by an estimated 10,000 tonnes during July, better than the 10-year average m/m July increase of 253,000 tonnes. Pulp markets are nearing an apparent inflection point as domestic spot price erosion slows and prices in China move higher. Preliminary August spot prices provided by RISI Fastmarkets declined ~US$10/tonne m/m for northern bleached softwood kraft (NBSK) pulp in North America to a range of US$620-US$660/tonne, the slowest pace of erosion this year. The list price decline was more pronounced as the gap versus spot narrowed. Effective net NBSK pulp prices in China have improved to US$668/tonne — up 3% over the past six weeks. China tends to lead cycle bookends."