Kurt Schaefer, Vice President, Fiber, RISI
Aug. 27, 2013
A tsunami of new BHK market pulp capacity is about to hit the pulp market. Make no mistake, this wave will pull pulp prices down to production costs in the first half of 2014. But price developments in the second half of 2014 and in 2015 could surprise some doom and gloomers, especially since most of the analysis so far has been focused on the amount of new market BHK capacity to be started up, and much less on what is happening to total BHK capacity. Market BHK capacity accounts for 45% of total BHK capacity, so concentrating only on market BHK misses an important part of the story.
There is indeed a tsunami of new market BHK capacity coming. The Eldorado mill in Brazil started up in late 2012 and is now running at its target capacity of 1.5 million tonnes per year. This has been well absorbed into the market so far, but there is more to come. The Arauco/Stora Enso joint venture in Uruguay (Montes del Plata, 1.3 million tonnes per year) is expected to start up this quarter and to be shipping commercial tonnage in the fourth quarter. Suzano's Maranhao mill in Brazil is expected to start up in the fourth quarter of 2014 and to be shipping commercial tonnage in the first quarter of 2015. We are also receiving some tentative indications that Oji's pulp mill in China (700,000 tonnes per year) may be starting up late this year, but this is still speculative. If the Oji mill does commence production as rumored, we will likely see 3.5 million more tonnes per year of market BHK capacity ramping up this year, on top of the 1.5 million tonnes per year of new capacity at the Eldorado operation.
It's hard to come up with a demand scenario that has all of this capacity being absorbed into the market without a major downward shock to prices. But sharply lower BHK prices will trigger a number of adjustments that will help to bring the market back toward balance in the second half of 2014, assuming, as we do, that the world economy and total paper demand perform substantially better in 2014 than has been the case in so far in 2013.
Kurt R Schaefer, Vice President, Fiber, and author of the World Pulp Monthly, works out of RISI's Bedford, MA, office and can be reached at Tel: 781.734.8917 or Email: firstname.lastname@example.org.
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