Russia's Invasion of Ukraine Will Likely Halt Planned Investments in the Russian Forest Industry

Feb. 28, 2022 (Wood Resources International - Market Insights) - Russia's invasion of Ukraine is likely to impact global trade in the coming months. Increased sanctions against trading with Russia and difficulty with financial transactions will probably interrupt and re-direct shipments of forest products throughout the world. As a result, trade with Russia will likely decline, impacting long-established international trade flows of forest products.

Countries like China and India, who have reluctantly supported Russia in the conflict, may also be affected by limited trade sanctions. This development would mainly affect China, which relies on the importation of forest products, including logs, wood chips, lumber, pulp, and paper from North America, Europe, Oceania, and Latin America for domestic use. These world regions are considering expanded sanctions for Russia and countries that directly or indirectly support Russia's attack on Ukraine.

Governments in North America and Europe are also seriously considering locking Russia out of the international SWIFT money transaction system. If this occurs, Russian companies will find it challenging to trade with the world.

Russia exported forest products were valued at over 12 billion dollars in 2021, and imports of paper products (mainly) are valued at about 2 billion dollars, according to Wood Resource Quarterly. Much of this trade is in jeopardy.

Russia is the largest lumber exporter globally and ranks as the seventh biggest exporter of forest products worldwide. Forest products exports from Russia have increased rapidly in the past five years, led by softwood lumber and paper products (see table).

Note. An estimated 40% of exports were destined for China, while the remainder was predominantly shipped to European markets.

Russia has vastly under-utilized forest resources and has the potential to increase timber harvests to supply its domestic industry. To meet increased global demand for forest products, the Russian government recently initiated programs to encourage investments in the sector to both expand/modernize existing manufacturing plants and build greenfield facilities.

However, it is likely that many investments projects in the forest products manufacturing sector in Russia will grind to a halt as the growing list of sanctions and financial transaction restrictions take effect.

Wood Resources International's "Market Insights" cover the most recent developments in regard to global wood supply, forest industry production, forest products trade, and pricing of sawlogs, pulpwood, wood chips, lumber and biomass. WRI also publishes Wood Resource Quarterly. To learn more, visit: www.woodprices.com.

SOURCE: Wood Resources International LLC

Wood Fiber Costs Increased for Softwood Pulp Producers Worldwide in 2021

Feb. 16, 2022 - Wood fiber costs for pulp manufacturers have gone up in practically all countries covered by the Wood Resources Quarterly ("WRQ") over the past year. In the 3Q/21, the Softwood Fiber Price Index (SFPI) was at its highest level since 2014, 8.1% higher than the 3Q/20. The most significant price increases have occurred in Western Canada, US South, Latin America, and Oceania. Softwood pulplog prices in the US South were up 9% year-over-year, an unusual jump in a region with relatively small price adjustments historically. Other noteworthy price increases were for softwood chips in Western Canada (+11% y-o-y) and softwood pulplogs in France (+9%), Brazil (+20%), and Chile (+15%).

The Hardwood Fiber Price Index (HFPI) has moved up the past year, following a downward trend of almost ten years since its record high in 2011. Despite the recent increases, the HFPI is currently about 4% below its 30-year average. In the past year, hardwood pulplog prices have gone up in practically all the primary hardwood pulp-producing regions of the world.

Wood raw-material costs for Brazilian pulp manufacturers increased almost 10% q-o-q in the 3Q/21. Log demand has been high in the solid wood sector, with sawmills and veneer plants increasingly competing for small-diameter logs that typically would be used by pulp mills, composite board manufacturers, and the pig iron industry. The pig iron sector is a significant consumer of eucalyptus logs for charcoal and its production grew by 18% y-o-y in the 3Q/21.

The high log demand and tight supply pushed prices for sawlogs and pulplogs to all-time highs in Brazilian Real terms. In US dollar terms, Eucalyptus pulplog prices have increased by over 20% from their 15-year low levels in early 2021. Despite the substantial jump in wood fiber costs over the past year, Brazil's pulp mills continue to have some of the lowest wood fiber costs of all regions tracked by the WRQ.

Wood fiber costs for Chilean pulp mills have also been on an upward trajectory the past year in the local currency, reaching a record high in the 3Q/21. As a result, eucalyptus pulplog prices have almost doubled in ten years in Pesos terms. However, due to a weakening Chilean currency, the price movements in the US dollar have been more modest, with current levels being closer to their ten-year average. The country's pulp industry is very competitive in the global market due to its hardwood pulpwood costs being substantially lower than in North America and Europe.

Wood Resource Quarterly, published by Wood Resources International, is a 75-page report established in 1988 and has subscribers in over 30 countries. The publication tracks prices for sawlog, pulpwood, lumber, and pellets and reports on trade and wood market developments in most key regions worldwide. For further information, visit: www.woodprices.com.

SOURCE: Wood Resources International LLC

Paper Excellence Announces Production Slowdown at Meadow Lake Pulp Mill Due to Lack of Railway Service

Feb. 11, 2022 - Paper Excellence today announced an indefinite production slowdown of its Meadow Lake, Saskatchewan, Canada, BCTMP (Bleached Chemi Thermal Mechanical Pulp) mill due to repeated lack of railway service.

The mill has the capacity to produce 410,000 tonnes of BCTMP per year, which is exported to customers primarily in Asia.

Meadow Lake Mechanical Pulp Inc., which employs 190 people and infuses over $1 million daily into Canada’s economy, is dependent on CN Rail, which has failed to transport Meadow Lake’s pulp production to ports for months. The mill has exhausted local storage facilities.

“While we remain committed to servicing our customers’ needs during this slowdown, we are extremely concerned about this railway situation and hope that it can be resolved soon,” said Stew Gibson, Vice President, Operations and Logistics.

Paper Excellence plans to return the mill to full production once reliable railway service is reestablished.

Paper Excellence, headquartered in British Columbia, is a diversified manufacturer of pulp and specialty, printing, writing, and packaging papers. The company operates seven mills and a large-scale cargo distribution center in Canada producing and shipping over 2.8 million tonnes annually with a workforce of more than 2,400.

SOURCE: Paper Excellence

UPM Pulp Takes on North America with New Eucalyptus Pulp Volumes

Powered by a new pulp mill, UPM is poised to make a big play on the North American pulp market.

By Sami Anteroinen for UPM

Feb. 1, 2022 - With a eucalyptus pulp boost from the Paso de los Toros mill in Uruguay, scheduled to start-up in the first quarter of 2023, UPM Pulp is ready to take on a completely new market in North America. Lajos Forster, Sales Director, New Markets, comments that the company started its market entry already in 2021.

“With the additional Euca volume, we are ready to develop UPM Pulp into a global market pulp supplier. Therefore, a presence in the third biggest pulp market in the world is just a logical consequence on our journey,” says Forster.

Forster notes that UPM Pulp has successfully established itself as a reliable player in the Asia-Pacific region and Europe during the previous decade and is now using this experience to develop its third strategic market.

“Of course, a new supplier in a market always creates some expectations, but we got the impression that there is room for a player that can offer a leading sustainability performance including the most common forest certifications, supply security because of our soon two mills, and our excellent logistics network.”

Logistical Edge

Talking about those logistics — especially rail deliveries — Forster points out that they are quite complex in North America.

“Our experience in the supply chain management for UPM’s Paper and Label materials businesses in North America will also benefit UPM Pulp to provide superior and competitive logistics solutions to our customers. We don’t start from scratch and have been a well-established player there for years,” he says.

Furthermore, UPM’s eucalyptus pulp is coming from Uruguay, a country that has never cut rainforest to establish eucalyptus plantations. “Our trees grow on former grassland,” confirms Forster.

As for UPM Pulp’s goals for the North American market, the answer, and target, is clear: “We aim to become the second largest supplier of eucalyptus pulp to the North American market by 2025.”

The Right Setting for Success

Looking ahead, Forster believes that the market will grow moderately with tissue as one of the drivers. The consumption will still increase, but also the shift from recycled fibre based tissue to virgin fibre tissue will have a positive impact on the demand of eucalyptus pulp.

“We also see a lot of interest in eucalyptus from other end uses that currently use mixed hardwood as their hardwood fibre,” Forster comments.

According to him, the biggest challenge involves building an environment where UPM’s customers see the company as their preferred supplier.

“We will be able to achieve this with a very professional sales & logistics team with an outstanding service level mindset and deep knowledge about the pulp market,” he sums up.

Reshuffling the Deck

Brian McClay, Principal consultant at Brian McClay & Associates, says that UPM’s entry into the North American Bleached Eucalyptus Kraft (BEK) market is a significant development, and will reshuffle the dynamics of the North American market.

“Bleached Eucalyptus Kraft consumption in North America is dominated by the tissue market, and most of the major buyers have contractual relationships and value stability, certification, R&D and strong technical support, all of which UPM is well placed to provide.  We expect that UPM will be a welcome addition to this market,” comments McClay, who counts UPM among the industry’s leading companies.

“UPM is innovating, investing in high-quality assets, and effectively reporting on its sustainability performance,” he says.

Better Geographic Balance?

McClay notes that North America has seen growth in the tissue market and decline in the printing and writing market over the last decade, and these trends are likely to continue.

“For BEK, tissue accounts for nearly 90% of demand, so we can expect BEK demand to grow in line with tissue demand growth, which tends to track with GDP growth. The North American tissue consumer prefers soft, high-quality tissue made on through-air-dry (TAD) machines, and BEK is the preferred hardwood fibre.”

North American paper production and pulp demand is heavily concentrated in the eastern part of the US, but McClay expects to see more tissue capacity additions in the coming years in areas of the south and west, as well.

“The North American market can be a challenge for suppliers because customers expect pulp to be delivered to their mill door, and the freight costs are often shockingly high to certain locations, which can present problems to new entrants.”

Increasing Competition

Nevertheless, in the coming years McClay expects Latin American and European producers to gain market share at the expense of domestic integrated and non-integrated suppliers.

“In general, pulp mills in North America are smaller, older, and less consolidated than those in Europe and Latin America, and, as such, tend to be higher on the global cost curve.”

SOURCE: UPM