China Remains as Chile's No. 1 Pulp Buyer

SCI99

2020-01-19

China Remains as Chile's No. 1 Pulp Buyer

According to the Chilean Customs, in December 2019, the pulp shipment detailes from Chile to China were as follows: 110kt SWP, 70kt HWP and 30kt UKP. In 2019, Chile exported 4,770kt of pulp, down 70kt from 2018. However, Chile’s pulp export to China was 2,520kt, up 30kt from 2018. As seen from the chart below, in 2019, China accounted for over 50% of Chile’s pulp export each month, and it was the top pulp export destination of Chile because of the stable trade relations between the two countries and the price advantage of the Chilean pulp.

A long term stable trade relationship

In 2006, Chile become the first Latin American Country to sigh a free trade agreement with China, and the free trade agreement was upgraded in 2017. Since 2012, China has become the No.1 trade partner, the No.1 export destination and the No.1 import organ of Chile. The China-Chile trade volume accounted for one fourth of Chile’s international trade, and Chile ranked third among China’s Latin American trade partners.

From 2016 to 2019, the pulp shipment from Chile to China increased by 5% on average each year, and the long term stable trade relationship between China and Chile has undoubtedly provided the firm foundation for the steady pulp trade growth.

Rich forest resources and cost advantage

Chile is rich in forest resources, and 55% of Chile’s land area is suitable for forest growth. In 2016, the forest cover rate of Chile was 32% with an area of 2,421 hectares covered in forest. The major tree species are Radiata Pine (54.2%) and Eucalyptus (29.2%), and major forestry products include lumber, pulp and paper.

According the Chilean Ministry of Agriculture, in 2018, the forestry product export value was 6.84 billion USD, up 27% Y-O-Y. China is the No. 1 forestry product export destination of Chile with an export value of 2.35 billion USD, accounting for 34.4% of the total. The major export product to China is pulp. Chile’s pulp export creates an income of 3 billion USD for the country each year, roughly equals 2% of Chile’s GDP.

The rich forest resources in the country has led to a low feedstock cost for pulp production. According to the data from the Q3 report of CMPC, the unit cash cost of Chilean SWP was $326/mt, which is lower than that at pulp mills in Canada, the U.S. and West European countries. A massive amount of Chilean pulp circulates in the market of China, and it is well accepted by downstream paper mills in China. Besides, the Arauco BSK is the designated for the pulp futures delivery at SHFE, which has further enhanced the market recognition of Chilean pulp.

Outlook

In the long term, the MAPA project at Arauco with a design eucalyptus pulp capacity of 2,100kt/a is estimated to become operational in Q1 2021, and Arauco will become the third largest eucalyptus pulp producer in the world by then. Therefore, Chile will become one of the important HWP suppliers of China.

In the short term, the trading in the imported wood pulp spot market will hardly increase near the Spring Festival holiday, and the pulp prices may see minor changes. However, the Valdivia mill of Arauco will switch to produce dissolving pulp starting from January 2020, and the output of paper pulp will decrease. Besides, the offer for February from Arauco has increase, in addition to the restock activities at paper mills in China and the estimated cultural paper peak season in March, the pulp price may be stable-to-increasing in Q1 2020.

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