US Paper Supply Chain Update: International Paper Sees H2 Pressure as Domtar Restarts Woodfree Paper Capacity

US Paper Supply Chain Outlook: International Paper and Domtar in Focus

On July 29, International Paper executives signaled that through the rest of 2021 the company will manage supply chain disruptions while rebuilding inventories and pushing to raise output.

During the company's Q2 2021 earnings call, CFO Timothy Nicholls said raw material costs climbed in the second quarter. Higher product prices partly offset that pressure, but the chain from raw material supply to product sales is expected to remain challenged in the months ahead.

'S ome cost pressure may be temporary, such as the impact of heavy rain in the US Gulf on our wood costs,' Nicholls said. 'However, an extremely tight transportation environment will keep pressure on all inbound raw materials. With every transport mode stretched, we expect this tightness to continue in the second half.'

Caustic Soda Supply Remains Tight

Among key inputs for pulp and paper are caustic soda. US and European caustic soda supply has been tight since deep frost hit the US Gulf Coast in mid-February. In mid-June, prolonged heavy rain from a tropical storm and operational issues temporarily disrupted production in both regions.

In 2021, US caustic soda export and domestic spot prices stood at $225 per dry metric ton (FOB US Gulf) and $245 per dry short ton (ex-works), respectively.

By July 27, those prices had reached $475 per dry ton (FOB US Gulf) and $650 (ex-works), respectively.

After weak demand in 2019 and 2020, US caustic soda recovered in 2021, and global caustic soda prices followed a similar upward path. The main driver was early progress against COVID-19, which revived global economic activity, while caustic soda supply tightened. Northwest Europe FOB prices rose from $245 per dry metric ton on January 5 to $650 per dry metric ton on July 27.

Platts data showed Northeast Asia FOB caustic soda prices rising 50% from $240 per dry metric ton on January 5 to $360 per dry metric ton on July 27, while Southeast Asia CFR prices increased 47% from $265 per dry metric ton to $390 per dry ton.

Raw Material Inventories Sit Low

International Paper CEO Mark Sutton said on July 29 that in the second quarter, lingering fallout from frost damage and mill maintenance outages left the company's linerboard inventory for corrugated cartons 'extremely low.'

The frost damage forced petrochemical plants to shut down on a broad scale. International Paper saw raw material supply squeezed, and some of its mills were also idled. Record-high freight rates, container shortages and tight truck capacity continued to worsen the impact.

'Cost and freight are among the biggest headwinds,' Sutton noted. 'Recycled fiber costs in North America and Europe have risen sharply, which will certainly have a major impact on costs, but it is also another sign of a strong demand environment.'

The company reported second-quarter net earnings of $432 million, up 62% year on year, when the prior-year quarter marked the peak of COVID-19 shutdowns. Net sales rose 15.4% to $5.6 billion from $4.86 billion a year earlier.

Woodfree Paper Demand Recovers as Domtar Restarts Capacity

The US woodfree paper market now appears to be recovering. In mid-July, Domtar decided to restart woodfree paper capacity it had cut during the COVID-19 pandemic last year.

Since April 2020, Domtar has removed 655,000 tonnes of uncoated printing and writing paper capacity. It is now moving in the opposite direction: the company announced the restart of the uncoated printing and writing paper machine at its Ashdown mill in Arkansas, USA. The machine has a capacity of 16.8 tonnes and is expected to return to full operation in January 2022 after a ramp-up period. Domtar has allocated $10 million for startup costs.

Since April 2020, several paper machines at the Ashdown mill have been idle. Domtar said at the time that it had to respond to persistently declining demand in the graphic paper market, withdrawing a total of 655,000 tonnes of woodfree uncoated paper capacity last year, involving machines at the Kingsport, Port Huron and Ashdown mills.

With the woodfree paper market environment improving, Domtar decided to restart production at Ashdown. Rob Melton, Domtar's senior vice president of pulp and paper operations, said: 'The pandemic is under control, the economy is recovering, and paper demand is recovering. Our customers' businesses are growing steadily, so we are responding.'

It is understood that in addition to the woodfree paper line, the Ashdown mill has three other pulp lines, with softwood pulp and fluff pulp capacity of 775,000 tonnes per year.

Restarting the woodfree paper capacity at Ashdown will reduce its southern bleached softwood kraft (SBSK) pulp capacity by 185,000 tonnes per year, though fluff pulp production will not be affected.

Domtar also said it will increase thermal coated paper capacity at its West Carrolton mill in Ohio to meet growing demand for its thermal paper sales.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-377987.html