Recently, the price of pulp market hit a new record high again, and major participants announced new price increases almost every week. Looking back at the past of the market, how did it develop to the present stage? These three pulp price drivers need special attention – unexpected downtime, project delay and transportation challenges.
Unexpected shutdown
First of all, unexpected downtime is closely related to pulp prices, which is a factor that market participants need to pay attention to. Unexpected downtime includes events that force the pulp mill to temporarily stop production. This includes strikes, mechanical failures, fires, floods or droughts that affect the ability of the mill to reach its full potential. It does not include any pre planned content, such as annual maintenance downtime.
In the second half of 2021, unexpected downtime began to accelerate again, which coincided with the latest increase in pulp prices. This is not necessarily surprising, because unexpected downtime has proved to be a strong supply side shock that has driven the market in the past. In the first quarter of 2022, the number of unexpected market stoppages hit a record high, which of course will only worsen the pulp supply in the global market.
Although the speed of this downtime has slowed down from the level earlier this year, new unexpected downtime events have occurred, which will continue to affect the market in the third quarter of 2022.
Project delay
The second factor of concern is project delay. The biggest challenge of project delay is that it offsets the market’s expectation of when new supplies may enter the market, which may lead to fluctuations in pulp prices. In the past 18 months, two large pulp capacity expansion projects have encountered delays.
The delays are largely related to the epidemic, either because of a shortage of labor directly related to the disease, or because of visa complications for highly skilled workers and delays in the delivery of key equipment.
Transport costs and bottlenecks
The third factor contributing to the record high price environment is transportation costs and bottlenecks. Although the industry may be a little tired when hearing about supply chain bottlenecks, the fact is that supply chain problems do play a huge role in the pulp market.
Most importantly, ship delays and port congestion further exacerbated the flow of pulp in the global market, ultimately leading to reduced supply and reduced buyer inventory, thus creating the urgency to obtain more pulp.
It is worth mentioning that the delivery of finished paper and paperboard imported from Europe and the United States has been affected, which has increased the demand for their domestic paper mills, thereby boosting the demand for pulp.
The collapse of demand is definitely a concern of the pulp market. High paper and cardboard prices will not only hinder demand growth, but also need to worry about how inflation will affect general consumption in the economy.
Now there are signs that consumer goods that can help rekindle the demand for pulp after the outbreak of the epidemic have shifted to service expenditures such as restaurants and travel. Especially in the graphic paper industry, higher prices will make it easier for consumers to turn to digital.
European paper and paperboard producers are also facing increasing pressure, not only from the pulp supply, but also from the “politicized problem” of Russian natural gas supply. If paper producers are forced to stop production in the face of higher natural gas prices, this means that pulp demand will face downside risks.
Post time: Sep-15-2022