Outlook for Unbleached Kraft Pulp


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Outlook for UKP demand, supply and prices

The Outlook for UKP Demand, Supply and Prices is a paid-for multi-client service which provides subscribers with an in-depth report analysing the global market for UKP

The UKP sector is enjoying a period of sustained tightness that has raised prices to historical highs and served to depress the pricing discount commanded with bleached grades close to record lows. In April 2018 the benchmark UKP price reached $885/t cif China (net), surpassing all previous peaks. More interestingly, the chart below shows that the differential between net prices of NBSK and UKP cif China narrowed to just $20/t during Q1-2018, compared to an average discount of $65/t over the past ten years.

The declining discount illustrates the importance of the pricing mechanism in restoring balance to undersupplied markets. Indeed, the narrower differential is starting to attract marginal UKP supply, from traditional suppliers of bleached kraft market pulp, and other swing mills.  Ordinarily, one would expect this new supply to quickly restore balance. However, there are reasons to believe that on this occasion the ‘UKP opportunity’ may persist.

The demand prospects for the sector are clearly much improved from several years ago. Of note, increased construction activity is providing substantial support to the fibre cement grades whilst the demand for filtration/electrical grades continues to be underpinned by robust global economic growth, particularly in some emerging markets such as India. These higher margin markets have traditionally diverted tonnage away from the commodity UKP market, which during the period 2000-2012 was in a state of contraction owing to the increased utilisation of recovered fibre amongst board manufacturers.

However, even the commodity grade packaging markets are starting to exhibit strong demand growth for UKP. There are multiple drivers: the deteriorating quality of OCC, growing consumer preferences for unbleached products, a shift towards stronger, lighter weight packaging and the recent disruption in Chinese recovered fibre markets. This later point is particularly important but most likely overstated; although the recent ban on imports of mixed waste has obliged certain board manufactures to switch to virgin fibre for a portion of their fibre requirement, the scale of substitution has been very limited as the price of UKP has become prohibitively expensive for most board manufacturers.

Resurgent demand for UKP contrasts sharply with the outlook for supply. Although several companies are evaluating opportunities to increase UKP capacity through 2022, there are no major confirmed investments. It is this disparity between supply and demand which promises to keep the pricing differential with bleached grades unusually low during the years ahead. This report provides an in-depth analysis of this dynamic, focusing on demand and supply side trends, and making observations regarding price drivers and substitution.

UKP prices-page-001


This report has been prepared using desk research which has been supplemented by interviews with existing UKP suppliers, buyers, traders and other industry participants. We have also made full use of Hawkins Wrights existing information resources, contacts and relevant research material.

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