January 19, 2018 7:25 am JST

Pulp prices soaring on tight supply and brisk Chinese demand

Japanese buyers paying 40% more than a year earlier

Pulp production has slowed in some regions, sending prices higher in Asia.

TOKYO -- Pulp prices are surging as growing Chinese demand combines with a tight supply, sending December shipment prices to Japan near record highs after rising over 20% in three months.

North American needle bleached kraft pulp, often used in products like paper towels and tissue paper, rose 6% in December to about $950 a ton including shipping costs. The price for this pulp, known as NBKP, jumped 40% in 12 months to its highest since June 2011.

South American leaf bleached kraft pulp, or LBKP, used mostly in copy paper, increased 4% in December to about $830 a ton -- also up about 40% in a year and hitting the highest level since July 2010. The prices of both types of pulp have climbed for four months straight.

Output shrank in South America, after a Brazilian pulp maker suffered a malfunction at its plant last year. A major player in Indonesia also has struggled to procure logs for making pulp amid stronger environmental regulations.

Slow production has accelerated the rise of LBKP prices since summer. The material usually goes for about $120 less per ton than NBKP, but the difference shrank at one point to just $50 or so. This led papermakers to buy more NBKP to take advantage of its relative cheapness, while also attracting speculators betting on a further rise in prices.

Chinese demand is lifting prices as well. The country began cutting imports of used paper last year on environmental grounds, and China's papermakers are importing more pulp to compensate for the shortage of used paper, with November figures up 20% on the year. This year, authorities so far have permitted only 10% of the used-paper imports as in 2017. China eventually may raise its cap, but total imports in 2018 are expected to fall below last year's figure.

The rapid surge in pulp prices has raised concerns in the industry. "Papermakers have lashed back, and some [pulp] sellers are taking a wait-and-see approach," a source from a trading house said, noting that a further rise in prices seemed unlikely.

Higher pulp prices could force papermakers to charge more for household products and copy paper. But those who make pulp in-house could enjoy a boost to their earnings. Japan's Oji Holdings, which produces pulp in Brazil and elsewhere, would see a 2.3 billion yen ($20.7 million) increase in annual group operating profit for every $10 increase in pulp prices per ton.

(Nikkei)

Oji Holdings Corp.

Japan

Market(Ticker): TKS(3861)
Sector:
Industry:
Process Industries
Pulp & Paper
Market cap(USD): 6,755.88M
Shares: 1,014.38M

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