The improvement in pulp supply coincides with weak demand, while risks such as inflation, production costs and the epidemic will continue to challenge the pulp market in 2023. A few days ago, Patrick Kavanagh, senior economist at Fastmarkets, shared his views, which are summarized below.
Increased pulp trade activity: The availability of pulp imports has increased significantly in recent months, allowing some buyers to build inventories for the first time since mid-2020.
Easing logistics worries: The easing of sea freight logistics is a key driver of import growth as global demand for goods cools, with port congestion and tight supply of ships and containers improving. Supply chains that have been tight over the past two years are now compressing, leading to increased pulp supplies. Freight rates, especially container rates, have dropped significantly over the past year.
Weak pulp demand: Pulp demand is weakening, with seasonal and cyclical factors weighing on global paper and board consumption.
Capacity expansion in 2023: In 2023, three large commercial pulp capacity expansion projects will start successively, which will drive supply growth ahead of demand growth, and the market environment is loose. Namely, Chile’s Arauco MAPA project is scheduled to start construction in mid-December 2022; UPM’s BEK greenfield plant in Uruguay is expected to be put into production by the end of the first quarter of 2023; Metsä Paperboard’s Kemi plant in Finland is scheduled to be put into production in the third quarter of 2023.
China’s epidemic control policy: With the continuous optimization of China’s epidemic prevention and control policy, it may enhance consumer confidence and increase domestic paper and paperboard demand, while strong export opportunities should also support market pulp consumption.
Labor disruption risk: As inflation continues to weigh on real wages, the risk of organized labor disruption increases. In the case of the pulp market, this could result in reduced availability either directly due to pulp mill strikes or indirectly due to labor disruptions at ports and railways. Both could again hamper the flow of pulp to global markets.
Production cost inflation may continue to rise: Production cost inflation for pulp producers remains under pressure despite record pulp pricing in 2022.
Post time: Apr-17-2023