SWP Spot Market Likely to Remain Strong
Under the influence of multiple factors, the spot market price of imported SWP rose strongly in March. In April, the SWP price is still expected to see upside adjustments, but the upward potential may be limited. It is advised to pay attention to factors such as market supply, the price adjustment of market pulp sellers, the recovery of demand, the release of new pulp and paper capacities, and changes in market sentiment.
Affected by various factors, the price of imported SWP rose strongly in March.
The monthly average spot market price for imported SWP in China was RMB 6,105.71/mt, up 4.07% M-O-M, but down 8.18% Y-O-Y. The BSK futures market at SHFE went bullish in general, but the actual market supply-demand factors saw limited improvement. As seen from the comparison between the current and historical SWP prices, the market rose above the historical average level of the past five years. The seasonality index rose to 1.03 in March, which was against the seasonal pattern.
For the upcoming months, it is advised to pay close attention to the following aspects.
Market supply: the production and shipment status of market pulp sellers will affect the overall supply in China. As seen from export data of major pulp exporters to China (Feb pulp exports from Brazil to China down 25% M-O-M) and the scheduled shipment arrival reflected by ports, the supply of imported market pulp is expected to decrease. But due to the slow consumption of inventory, the overall market supply in April is expected to drop by 2.62%. Thus, the tightening pulp supply may continue to support the pulp price, and logistic situations are also worth paying attention to.
Offer adjustments by market pulp sellers: Offer adjustments by leading market pulp suppliers and the implementation will lead the changes in the spot resale market in China. Taking Arauco BSK as an example, the offers for February and March were held stable at $745/mt, and the offer for April was raised to $780/mt, lending support to the spot market price. Also, the offer for April BEK volumes from Brazil was raised by another $30/mt, which facilitated the hike for March. In the meantime, there have been constant unexpected factors such as the port strike in Finland and consequential downtimes, port strike in Chile in early April, and the voting for a potential strike in Canada by rail workers. Besides, other factors such as the inventory of market pulp suppliers, consumption in Europe, and inventory changes also have an influence on the market sentiment and price hike implementation.
Downstream demand recovery: In April, the paper industry will enter a traditional demand slack season, and the demand recovery may decelerate. In addition to weaker profitability, the theoretical pulp consumption is expected to drop by 4.81%, dragging the pulp price. It is advised to pay attention to actual demand release on the market performance.
New capacity: No SWP capacity release is expected in April, but Metsa offered no volume for April, which will affect the supply and demand pattern of the global pulp market and the sentiment in China’s spot market. As for downstream paper industries, around 300kt/a of ivory board capacity is scheduled, but attention should be paid to the actual commissioning dates of newly added capacity.
Sentiment: Fluctuations in the main contract prices of pulp futures at the Shanghai Futures Exchange have a significant impact on the spot market sentiment. The degree of linkage between futures and spot markets is highly correlated, which may cause short-term divergence from the fundamentals in the spot market price trend, so the periodic influence of futures prices on spot prices should be closely eyed.
SCI reckons that for April, both the pulp market supply and demand are expected to narrow, with the decline in demand outpacing that of supply, which may drag the pulp price trend. However, the high cost of operations still provides support for future pulp prices, while the uncertainty of market sentiment and supply chain factors remain, potentially further strengthening expectations of a rise in pulp prices. Overall, SWP prices are expected to fluctuate strongly in April, but with limited room for adjustments and a slight lack of momentum in actual transactions.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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