SINGAPORE, 15 April 2022 (PPI Asia) - China’s strict anti-COVID-19 lockdowns, most notably in Shanghai, have thrown a wrench into paper and board (P&B) mill logistics across the country, depressing fundamental demand for market pulp.

“We have orders from clients and our products are ready. But we can’t get truck drivers to make deliveries,” said a major fine paper producer.

The harsh lockdown measures have also hindered the pickup of pulp from ports for delivery to mills.

On a bigger scale, they are choking off some P&B consumption, and are expected to tank the economy.

“Demand for coated fine paper and copy paper has been hit hard, but offset uncoated fine paper is fine, shored up by essential needs like school textbooks,” said the contact.

Sources reported that a recovery of exports of Chinese fine paper and coated ivory board to Europe, North America and the Middle East is expected to offset the decline in domestic demand.

However, contacts indicated that Chinese mills had ramped up P&B production in Q1 to make up for shortfalls following government-mandated downtime to curb energy consumption during the last quarter of 2021.

Then came the ongoing lockdowns, which have sent mills’ P&B inventories soaring, prompting buyers to mull over whether it makes sense to get pulp volumes if prices continue to climb.

Major P&B plants were able to replenish depleted pulp stocks when prices for pulp imports plunged by as much as $110/tonne last October.

But pulp prices bounced back the following months, and mills have not been able to maintain sufficient inventories.

Suppliers are due to announce pulp import prices for May shipments next week.

A sign of a slowdown is the decline of resale South American bleached hardwood kraft (BHK) pulp in the domestic market.

It has slipped RMB 112/tonne ($18/tonne) from a fortnight ago to RMB 5,980/tonne (equivalent to $810/tonne after deducting 13% VAT and RMB 150/tonne logistics costs).

Nonetheless, in view of worsening supply-side restrictions with unexpected mill outages in Canada, Russia, Europe and South America, contacts pointed out that buyers’ top concern is security of pulp supply.

“No buyers want to risk losing their contracts by slashing volumes at present,” said a major trader.

Late deliveries due to the international shipping crunch are expected to get worse in the next few months consequent to the lockdowns in China, which are slowing things down with the country’s logistics and port operations.

NBSK prices edge up:

A major Canadian producer has managed to sell monthly northern bleached softwood kraft (NBSK) contract volume to long-term end-user buyers, chiefly tissue manufacturers, at $1,030/tonne. Most other sellers have tied their NBSK prices to futures.

But BSK futures on the Shanghai bourse have fluctuated over the past two weeks in a range of RMB 6,500 - 7,200/tonne, which is not big enough to motivate customers to stock up, or to trigger suppliers to cut prices.

Other Canadian sellers are holding NBSK prices steady at $990-1,000/tonne, despite weak fundamental demand. The higher level for contract deals has brought Canadian NBSK prices to $990-1,030/tonne.

With Nordic NBSK stable at $950-1,000/tonne, the mid-point for NBSK has come to $993/tonne, up $8/tonne.

Other BSK levels have been steady so far, with radiata pine and Russian BSK standing at $960-990/tonne and $940-980/tonne, respectively.

BSK futures, resale:

The most tradable BSK futures shifted from May to September on the Shanghai bourse last week.

The September contract (sp 2209) settled at RMB 7,024/tonne on Thursday, which is equivalent to $959/tonne minus VAT and RMB 120/tonne logistics costs.

Resale NBSK has crept up RMB 66/tonne to RMB 7,158/tonne, equivalent to $974/tonne.

The fluctuation has led to traders and end-users fetching volumes when futures levels swung to low points, from investors getting rid of tonnages.

BHK outlook:

Contacts’ views over South American BHK prices are divided.

Some project prices for the grade still have room to go up by $10-20/tonne, as buyers’ stocks remain low.

However, producers have growing concerns over the impact of the lockdowns in China.

A dominant supplier indicated that Chinese manufacturers are pushing for P&B price increases in the domestic market, and that the hikes usually take three to six months to get implemented.

The lockdowns bode ill for the plans. Prices for tissue jumbo rolls have been in decline due to poor demand and overcapacity.

The producer contact said prices for South American BHK might be kept intact, in a bid to provide downstream negotiating respite to customers.

Prices for the grade’s April shipments are $770-780/tonne, up $100/tonne from the preceding month. Most sellers have reportedly closed deals with allotments sold out.

But a few big-volume sellers are said to still be in talks with disgruntled buyers.

From Fastmarkets RISI