Red-hot kraft pulp industry

By Patrik Löwnertz, VP Marketing & Sales, Chemrec

The financial crisis was for the kraft pulp industry as for others a lesson in the importance of managing the debt burden and liquidity. For a while it also hit demand and prices drastically but that is now just an unpleasant and fading memory as demand and prices hit new record levels.

Idled mills back in operation
European softwood prices have since May been at a steady level around $950 per ton and the magic $1000 per ton level is now within reach.

Idled pulp mills are now coming back into operation

Strong demand has lately resulted in a number of idled mills coming back into operation and in a few instances integrated mills have ceased paper production to exclusively produce market pulp.

New kraft pulp mill projects
The investment in new capacity was halted by the financial crisis but has now regained momentum. From mid-2010 to February 2011 orders have been placed for several major kraft pulp mill projects.

Pulp mill	City/country	Capacity
Ilim Pulp	Bratsk, Russia	720 000 ADt/y NBSK
Oji	Nantong, China	700 000 ADt/y BHK
Eldorado Papel & Celulose	Três Lagoas, Brazil	1.5 million ADt/y BHK
Montes del Plata	Punta Pereira, Uruguay	1.3 million ADt/y BHK
Paper Holding Lao Co. Ltd	Sun Munang Phin, Laos	300 000 ADt/d BHK
JK Paper Ltd	Rayagada, Orissa, India	225 000 ADt/d BHK

NBSK: long-fiber northern bleached softwood kraft pulp.
BHK: short-fiber beech hardwood kraft pulp (in the Nordic countries, birch pulp).
ADt/y: air-dried tons per year

The increase in output resulting from these projects will affect especially hardwood prices from the second half of 2013 but until then markets will most likely remain tight.

Dissolving pulp demand outstrips supply
While the market pulp industry is doing quite well the dissolving cellulose market is doing even better. Wall Street Journal quotes Fortress Paper specialty pulp division CEO Peter Vinall: “For the first time in recent memory, demand for dissolving pulp has outstripped supply, and buyers are struggling to get orders filled. That reflects a corresponding move in the price of dissolving pulp to approximately $2,350 per ton from $1,550 per ton 12 months ago”. The reason for this spectacular rally: increasing demand for clothing and cotton production not meeting the increased demand. Dissolving cellulose is used primarily for the production of cotton-like regenerated cellulose fibers going under names like Rayon, Viscose, Modal and Lyocell.

Still slim margins for pulp and paper industry
However, all sectors of the pulp and paper industry are not seeing the full benefits of the stronger global economy. In product areas like newsprint and coated communicationspapers in the mature European and North American markets long-term structural changes affect the demand. The margins are still very slim and some companies heavy in these market segments are still not profitable despite consolidation and capacity reductions. Continued restructuring and a move into new business areas must be the solution.

Patrik Löwnertz, VP Marketing & Sales, Chemrec, analyses the kraft pulp industry

Pulp industry demand and prices hit new record levels, idled mills are re-opening and new projects starting up all over the world, says Patrik Löwnertz, VP Marketing & Sales, Chemrec, in his industry review as of March 2011.