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Forest Products Lumber & Wood Production

Domtar Corp makes and sells a variety of fiber-based products through its pulp and paper mills and its network of converting and forms manufacturing operations throughout the United States and Canada. The company operates under a single business unit: pulp and paper. This segment produces communication papers (copy, electronic imaging, and uncoated freesheet papers), specialty and packaging... see more

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Post by retiredcf on Mar 01, 2021 8:51am

TD Notes

Global Pulp Market Update - January 2021 Data

January Mill Inventory Increase In-Line with Seasonal Norms Global Pulp Price Momentum Accelerating in Early-2021

Event

The Pulp and Paper Products Council (PPPC) released "World-20" market pulp data for January earlier this week (data from producers representing 82% of global chemical market pulp capacity). January shipments declined 4.8% on a year- over-year (y/y) basis, slightly worse than 2020 full-year growth of 2.2%. January shipment declines were evident for both softwood (down 8.2% versus a 2020 decline of 3.0%) and hardwood (down 4.7% versus 2020 growth of 6.7%). January-ending pulp mill inventories increased three days during the month to 38 days of supply versus the long-term average of 34 days.

Impact: NEUTRAL

January pulp data was muted, but overall market momentum is extremely positive, supported by anecdotal reports of lean buyer inventories and strong demand across all relevant regions. January pulp shipments to China (the largest buying region, representing 32% of all shipments) decreased 6.0% y/y, matching the full-year 2020 decline, but reports suggest strong volumes to China in February. Inventories increased m/m in January, consistent with seasonal norms. We have some concerns that the rapid rise in pulp prices in recent months, with more to come in March is "too much, too fast" but still believe that the current upcycle has legs. We partly attribute the m/m increase in mill inventories to logistics challenges (shipping constraints).

Pulp producers in our coverage universe: MERC; CFX/CFP; UFS; RFP; WFG.

Key Points for January Data

Y/Y January shipment declines were led by eucalyptus (down 5.9% y/y reflecting a difficult comp) and pressure on softwood grades. Hardwood shipments other than eucalyptus increased 11% y/y. Northern/southern bleached softwood kraft (NBSK/SBSK) volumes decreased 7.0% and 10.0%, respectively, y/y. Geographically, y/y shipment declines were weighted to Asia, Latin America, and Western Europe. Shipment pressure was likely exacerbated by container shortages.
Aggregate mill inventories of 38 days of supply increased three days m/m, above the long-term average (LTA) of 34 days, but down from the peak of 47 days in August 2020. Softwood stocks (39 days of supply versus LTA of 31 days) rose four days while hardwood inventories (37 days of supply versus LTA of 41 days) increased two days. Mill inventories increased by an estimated 354,000 tonnes during January – not too far from the 10-year average m/m increase of 373,000 tonnes.

Following a normalization of global mill inventories in H2/20, positive pulp price momentum has accelerated in early-2021. The current NBSK price in China is US$850/tonne – up 33% from the Q4 average and within 6% of a 15-year price peak. Prices in Europe are also improving but have lagged other markets. At least one producer has announced March list price hikes on North American NBSK of US$110-US$120/tonne which would raise domestic prices to the highest level since late-2018.