The overall economic outlook shows both some positive and negative trends. The outlook for the US economy remains unchanged with steady growth of 3% per quarter on an annualised basis. In Europe, the growing geo-political concern and the impact of the sanctions on Russia (targeting the financial, energy and defence sectors) increase the uncertainty. Thus, Europe is showing signs of worsening economy and euro is expected to depreciate further versus dollar. In general, US dollar is strengthening versus most currencies. The Chinese Q3 GDP figures showed that the economy grew better than expected by 7.3%, however, the general trend is still downward.
In the pulp market, the situation has been quite stable. Global bleached chemical pulp inventories remained unchanged at 33 days in October. In Europe, bleached chemical pulp inventories went down by one 1 day to 22 days. North American and Latin American inventories remained unchanged, at 29 days and 40 days respectively. The bleached softwood kraft pulp market was stable in October, but we are waiting for a seasonally stronger period for BSK consumption in Europe and North America as December approaches.
Strengthening US dollar and rising production - both hardwood and softwood - present headwinds to pulp price increases. The depreciation of euro still presents a major obstacle to producers’ attempts to increase softwood prices in Europe. Over Q414, softwood markets may face pressure as hardwood additions ramp up in Latin America and China, encouraging substitution from softwood.
Montes del Plata Pulp Mill in Uruguay started up in early June and the ramp-up is moving ahead, but at a slower pace than previously expected. We estimate Stora Enso’s share of its production in 2014 to be 245 000–275 000 tonnes, 55 000–75 000 tonnes less than anticipated earlier.
The price gap between softwood and hardwood pulp in Europe is still wide. However, the general belief is that hardwood price has hit the bottom.
The contract negotiations at the London Pulp Week focused on the supply and demand balance for next year. Softwood market will remain relatively balanced or tightening due to capacity growth of 0.3 million t/y. On the hardwood side, despite the closure of ENCE’s Huelva mill in October, further growth in supply is expected to in Q4 as the new capacity starts to realise its maximum potential. According to RISI forecast BHK prices will rise going into 2015, thanks to strong dollar, market-related downtime and capacity closures.
World chemical pulp capacity is growing slightly faster than the trend. The growth figures for softwood and hardwood pulps are significantly different from each other both in the pace of the growth and in volumes. More than half of the growth of chemical softwood pulp will be seen in Europe, whereas all the hardwood pulp growth is in Latin America and Asia. Also demand for hardwood pulp will grow faster than softwood demand.