Dilemma of dissolving pulp market

Dissolving pulp market in the first three quarters of 2021 was generally satisfactory as imported hardwood pulp soared to $1,100/mt, hitting new highs since 2012. Even though downstream market was weakening in the second and third quarters, dissolving pulp price still kept firm. By Aug, hardwood dissolving pulp was still at $1,010/mt.

The price of dissolving pulp just rose to $990/mt even during the bull market brought by supply-side reform in 2015-2016, while VSF exceeded 16,000yuan/mt at that time.

Now the price of VSF has dropped below 12,000yuan/mt and is getting close to the historical low level except for that of the COVID-19. However, chemical materials and coal prices stay at relatively high level and keep hiking recently, greatly squeezing the space of accepting pulp price by VSF plants. The following table shows the corresponding price of imported hardwood dissolving pulp when VSF price reached 11,800yuan/mt in past years.

Unlike dissolving pulp, VSF accounts for a small proportion in consumption market of caustic soda and coal, failing to affect the upstream market. Under the trend of continued rising percentage of integration, VSF and dissolving pulp have more and more symbiotic characteristics. For a long-term perspective, it can be an initiate choice instead of a passive requirement to fix dissolving pulp price by taking VSF as reference.

Returning to supply and demand side, there are more abnormalities in the operation of dissolving pulp units in 2021. There was no prominent contradiction between supply and demand before and it was challenging for the pricing by dissolving pulp mills. The abnormal operation in the fourth quarter may be reduced, coupled with good profitability currently, the supply of dissolving pulp is likely to increase. However, VSF plants are more likely to cut production amid huge losses, so the supply may tend to be loose.