Commodities — Pulp Markets Head Down, But Why Not Kraft?

Spend Matters welcomes a guest post from Nick Peksa of Mintec Ltd.

Having spent three of the past five weeks in North America, I have noticed a number of subtle differences between the US and Europe. Interestingly enough, the differences aren't just culturally based -- they're also commodity market based. The pulp and paper market is a prime example.

Pulp used for kraft
Strong packaging paper is made from brown unbleached or bleached kraft pulp. Kraft pulp is produced through a chemical-based sulfate process. The long cellulose fibres from softwoods such as spruce, pine, fir and cedar are predominantly used for pulp where strength is a requirement, such as in packaging papers. Hardwoods such as birch and aspen are also used.

Types of liner and fluting
Unbleached kraft paper is comprised of a high proportion of pure wood pulp, so when the price of pulp moves, the price of kraftliner should move accordingly. But in North America, this does not seem to be the case. The quoted price for kraftliner in the US appears to have been stable for a couple of years. Pulp is down, crude oil is up, chemicals are up, natural gas is down and starch is up. Why has the price not moved?

Europe has a slightly more dynamic market. Products like waste-based testliners are available as a replacement for kraftliner; these are the cheaper alternative to purchasing virgin fibre products. For example, single-ply testliner is made using recycled waste paper with additives such as starch to improve strength.

For corrugated boxes (boxboard), fluting is used as a layer in between two layers of testliner or Kraftliner. Europe uses waste-based fluting, made from recycled paper with additives like starch, whereas in North America the preferred choice of materials is semi-chemical fluting, manufactured from hardwood pulp and recycled waste paper.

Historical market movements
In 2011, China was the only major economy where paper production did not decline. In Europe, total paper and paperboard production was down by 2%, or nearly 2.1m tonnes from 2010, with packaging production in particular down slightly more by 2.1%. In the US, total paper and paperboard production was down by 1.7%, or more than 1.5m tonnes, from 2010. US paper production fell by 4.0% but paperboard production dropped by just 0.1%.

My thoughts
America does not really understand the recycling of paper-based raw materials. The price static price movements also suggest that there could be some opportunities in this marketplace as plants shut down and if enough support is gained for recycling programs and laws are passed. On the plus side the corrugated box market in the US is set to recover in 2012, with a bounce back expected in the second half of 2012 as the economy continues to recover.

- Nick Peksa, Mintec Ltd.

First Voice

  1. John Yolton:

    Nick,

    Your logic is slightly skewed. Most of the linerboard made in the USA is made in ‘intergated’ (pulp and paper) mills, not all, but most.

    Most of these integrated mills are located in fiber basket areas of the USA.

    Southern softwood is a particularly good species for containerboard. It’s fiber is abundant, fast growing, strong and long.

    Much of US containerboard is produced in the southern states due to this fact.

    Recycled fiber for use in corrugating medium has increased in the USA, displacing semi-chemical (NSSC) pulp in some cases.

    There are some recycled fiber linerboard mills in the US, however the market for OCC, the preferred fiber, is very competitive due to the huge exports of USA-based recovered fiber (RCP) to Asia, mostly China, some 19+ million tonnes per year.

    The USA recovers 63% of the paper produced. Europe recovers 64.5%. Not a significant difference.

    Interestingly, the largest US export, using shipping containers, is recovered paper, mostly to Asia, largely to China.

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