Pulp Prices Plummet 25% in Three Months, Industry Cautiously Optimistic

The pulp industry has witnessed a significant drop in prices over the past three months. Analysts and industry insiders believe the market may have reached its lowest point.

However, they remain cautious about future developments. The pulp market faces uncertainty due to additional supply entering the market.

Industry sources suggest two possible scenarios: prices have bottomed out or further corrections may occur. They stress the importance of observing market reactions to the new supply in the coming months.

Some producers believe prices are at or near their lowest point. Several factors support this view:

1. Economic stimulus in China
2. Current prices below production costs for Northern Hemisphere players
3. Strong demand in various regions
4. Ongoing logistical challenges causing delivery delays

These elements could help maintain prices at their current levels.

Analyst Perspectives

Analysts generally hold a more optimistic outlook. Rafael Barcellos from Bradesco BBI notes that demand typically strengthens in the second half of the year. This seasonal trend could support prices.

Barcellos also points out that reduced long-fiber pulp production capacity in the Northern Hemisphere has led to increased demand for short-fiber pulp.

The tighter long-fiber market makes short-fiber prices more resilient. This price difference results in substitution between fiber types.

Barcellos adds that low paper mill inventories and China’s recent stimulus package suggest a more favorable demand outlook in the Asian country.

Daniel Sasson from Italy BBA observes signs that pulp consumers believe prices are very close to the bottom. He notes that companies report normalized order volumes.

The fact that paper producers are buying more indicates they don’t expect significant price drops in the future. Suzano, the world’s largest pulp producer, recently announced a 4% reduction in market pulp production this year.

This figure excludes volumes from the Cerrado Project, which began operations in July. The new factory has an annual capacity of 2.55 million tons and is expected to produce 900,000 tons in 2024.

BTG Pactual calculates that Suzano will withhold about 400,000 tons of fiber from the market this year. Analysts expect a positive market reaction to this announcement. They believe it indicates that current price levels may be unfavorable for most producers.

Market Outlook

Sasson suggests that Suzano’s production cut announcement wasn’t surprising, as the company employed a similar strategy last year with positive effects on prices.

He interprets this as a signal that the volumes not produced in 2023 won’t return to the market soon. The additional pulp volumes from the Ribas do Rio Pardo factory are expected to impact the physical market more significantly.

This is anticipated to occur in the fourth quarter. However, Suzano’s announcement of continued production at 4% below capacity may reduce this pressure.

In addition, analysts from Bank of America highlight that Suzano’s decision to produce less in 2023 was crucial for price recovery.

This measure, announced after prices fell to $474 per ton in the Chinese market in May, helped rebalance the market. The recent stabilization of prices around $560-$570 per ton brings some relief to investors.

During the strong correction period, the main question was how low prices could go. The market now appears to have found a tentative equilibrium.

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