Surely something can be done there even though the exterior is protected.
Perhaps something runs along tracks in Simpele, as there’s no railway right next to Hämeenkyrö.
Indeed, a couple of logistics-related costs recently increased. Railway track fees: in 2024 it was 0.1532 cents/ gross tonne-kilometer and after the turn of the year 0.1927 cents/ gross tonne-kilometer. (It would seem that in 2023, 52% of all raw wood, timber, and paper transports ran on tracks, and concerns the three major industries in question.)
And when goods are imported and exported by sea, the fairway fees have been fully reinstated and are no longer halved.
One would think that at least pulp would come to Simpele from Joutseno via rails, and rolls would go to Kotka harbor in the other direction. In addition, Kyro’s cardboard is sheeted at the Simpele factory.
First post on this page and my apologies for my ignorance.
I understand that the profitability of forest companies is strongly influenced by the price of pulp in China, and I have tried to find it, for example, through the Trading Economics website, but I don’t think the Kraft pulp found there is correct.
For example, on that page you can find a clear, stable daily price curve for short-fiber and long-fiber pulp in China (the page text is already quite old). The prices are not comparable to, for example, European markets, but in my opinion, the directions of the curves “tell something”.
A competitive factory requires a billion-euro investment - and then you also need to know how to run it. The wood needed for pulping must be sourced from somewhere. Try starting a wood procurement organization from scratch. A pulp mill needs vast amounts of clean water and energy to operate. The raw material transport distance cannot be too long, or logistics will take a disproportionately large share of the margin. What do you think, are existing factories built in the worst locations?
Building a pulp mill is not rocket science. For money, Valmet and Andritz, among others, were quite happy to supply them. The largest companies have the money and resources to handle wood procurement for new mills. Recently, for example, Suzano opened the world’s largest pulp line in Brazil, so they can certainly be built if there is a perceived need.
The link you provided leads to Chinese softwood pulp futures in local currency. This is slightly different from the physical market price level. However, it can serve as an indicative source. Price data from the physical market is not readily available for free, and we also use a commercial service that provides price information, among other things. Currently, a ton of softwood pulp changes hands for about $770 in China, and the spot market price level in Europe is roughly the same. The list price is indeed a hefty $1500 per ton, but practically no one actually pays that.
I agree with Lokis about the pulp moat (of course, on the scale of basic industry). New mills were hinted at in Finland, at least in Kuopio, Kemijärvi, Paltamo, and perhaps somewhere in Ostrobothnia (Haapajärvi?), by who knows which companies during the good cycle and loose debt money around the turn of the decade, but not surprisingly, the projects remained in that moat. Established players inside the moat (Suzano, as the world’s largest pulp company, naturally belongs to this group) do invest occasionally, but on average, the supply/demand dynamics in pulp have remained healthy so far. Recently, new mills have been completed rapidly, and there is temporarily too much capacity, especially on the short-fiber side, but on the other hand, the next couple of years will be quieter in terms of new mill startups, and in some places, chimneys will also cool down due to both economic reasons and reasons related to the end of the mills’ lifecycles.
Folding boxboard mills have mostly been “traditionally” unintegrated with anything other than mechanical/chemi-mechanical pulp production, which is, however, used more in board production than chemical pulp. And generally speaking, pulp mills are located near raw material sources - this is not true to the same extent for paper and board mills.
In Finland, folding boxboard mills unintegrated in terms of pulp are Kyro, Tako, Simpele, Inkeroinen, Pankakoski - though the latter produces other things besides folding boxboard, namely various specialty boards. However, Kyro and Tako mills no longer have any pulp production at all. Similarly, MM Kotkamills (which currently has a machine specifically producing folding boxboard) does have a pulp mill, but it feeds a laminate paper machine. The Kotka mill integrate then has a chemi-mechanical pulp plant, from which pulp goes to the board side.
Among Finnish mills, Metsä Board’s Äänekoski mill has a pulp mill next to it, but it does not have mechanical/chemi-mechanical pulp production, and it has to be brought from Metsä Board’s BCTMP mills.
And furthermore, in Europe, for example, Stora Enso’s Fors mill (being a very significant producer of folding boxboard) in Sweden and Holmen’s Workington mill in the UK do not have integration in terms of chemical pulp, as is the case with several other mills in Europe - with the exception of MM Group’s Kwidzyn mill in Poland. Even there, the pulp mill is more explained by the integrate’s fine paper machines.
Antti Viljakainen has published a new company report on Metsä Board.
We reiterate our Reduce recommendation for Metsä Board and lower our target price for the company to EUR 4.75 (previously EUR 5.25). We have slightly lowered our forecasts for Metsä Board due to recent news flow and increased our required rate of return for the stock. The stock is cheap, especially on a balance sheet basis (2024e: P/B 0.9x), but due to intensifying competition in the cartonboard markets and the structurally tightening wood market in the Nordics, we believe the risk of a value trap is evident. Therefore, we do not currently see Metsä Board’s risk/reward ratio as attractive.
Could the swelling of energy wood stocks bring relief to the supply of pulpwood and thereby to its price, at least until next winter in Finland? Of course, mild winters can also inherently limit winter harvesting opportunities, especially as wood is increasingly harvested from peatlands.
Temporarily, probably, but some of the energy wood is logging residue that is not suitable for a pulp boiler.
Based on newspaper articles and forum posts, cardboard and paper machines operated at 60-80% capacity in Finland last year. Still, wood prices are at their peak. What do you think will happen when the demand for cardboard and paper recovers? In addition, there are still investments in the pipeline that will increase wood demand, e.g., SE in Oulu. I personally think that a few pulp mills will also be closed in the coming years. There won’t be enough wood for everyone at a reasonable price, as wood is unlikely to be imported from the eastern neighbor in the near future.
I would say that all these forest companies have room to come down to about half of their current prices, even without a change in earnings, as valuation multiples for basic industry are quite high. Many of these could easily drop to about a third of their current prices.
Historically, this is exactly true, but in my opinion, this does not mean that pulp integration would not be beneficial. Even integrated board mills may, of course, have to dry pulp for quality reasons, but full integration can be beneficial in terms of energy efficiency and, more generally, the scalability of fixed costs, especially in the Nordics, where a certain degree of competitive disadvantage is precisely the distance from the board’s end-users. Many of the newest entrants (including, for example, SE Oulu, Klabin in Brazil, and Chinese players) are also fully integrated, and I would see these players having a cost advantage, at least when calculated up to EBITDA, compared to existing mills, due to both economies of scale and broader integration. Of course, below EBITDA, players who have made large investments have significant depreciation to pay, so from no one’s perspective is this a victory lap with the current outlook.
Thoughts on that integrated comment.
There are certainly cost savings; at some point, softwood pulp was supposed to replace mechanical pulp. This has not yet been achieved, except in paper and light corrugated board grades, which these North American integrated mills mainly seem to produce.
Wood procurement for large integrated mills has become significantly more expensive, as wood has to be transported from an ever-larger area. Long wagons no longer run from the eastern border full of softwood and birch wood.
For the forest industry folks , highlighting Antti’s discussion about Metsä Board and the market in general
Metsä Board’s stock is cheap – especially on a balance sheet basis (2024e: P/B 0.9x). But due to intensifying competition in the cartonboard market and a structurally tightened wood market, the risk of a value trap is, in our opinion, evident.
Topics:
00:00 Introduction
00:18 What does a value trap mean?
00:58 Low return on capital
02:51 Market offers no tailwind
06:35 Is the cartonboard market growing over time?
09:42 Challenges for forest companies
11:40 Demand development
In Asia, the price increase will be $20 per metric ton. For Europe and North America, the price increase will be more significant, with a rise of $60 per metric ton.
“Suzano to increase eucalyptus pulp prices in Asia, North America, and Europe”
Suzano is a very significant and credible player, and I consider its price increase, both in terms of level and timing (1.2.25), to be credible. Good news.
I am attaching again the daily price curve for the Chinese market, the “dominant contract” in local currency. (Sorry for the repetition, already in messages 3121 and 3093). The market turnaround in China seems to have occurred on 15.12.2024 for both short-fiber and long-fiber pulp. I consider it significant that long-fiber pulp has now surpassed its 2024 peak (5/24) and is significantly above the 23/24 year-end level (+13% in local currency). Could the inventory adjustment be over?
The criticism presented in message 3114 regarding the European list price is correct and relevant; it is in clear contradiction with the market’s actual spot price. Therefore, SCA’s announced list price increase in Europe can only be considered a possible indication of a market direction change, by no means a rise in the spot price close to the list price.
The price of short-fiber pulp is approaching the 23/24 year-end level and has risen by about 6% from its bottom on 15/12/24. We are still far from the 2024 peak, but Suzano’s price announcement creates confidence in the beginning of a real turnaround.
Further on the use of the “dominant contract” price data. I don’t believe anyone in Europe and South America sends pulp to China for a 1-2 month shipping journey without securing the price. This happens one way or another through futures prices. Therefore, in my opinion, this price best corresponds to relevant price information. The market also generally has volume.
The rise in short-fiber pulp prices strongly affects UPM’s results.
The article refers to OP’s morning review, which estimates Suzano’s price increase figures;
China 20 USD = 4% vs local market
Europe 60 USD = 6% vs local list price
US 60 USD = 10% vs local spot price
Based on the share price reactions of forest companies, the market was excited by Suzano’s announcement, as news is otherwise scarce, apart from cautiously positive European PMI data for the industry. The increase came somewhat earlier than consensus expectations, and it will be interesting to see if it ultimately goes through.
In a positive scenario, the increase in list prices could indeed reflect a turnaround. However, the market intelligence service I use indicated that discounts given on pulp list prices in Western countries had again (this has been a trend in recent years) spread at the turn of the year, and the increase in list prices merely “covered” that gap (i.e., kept the price stable), at least for softwood pulp. In the coming weeks, we will presumably become wiser on the matter.
To my understanding, at least Finnish forest companies have not really started using pulp futures. Fundamentally, for pulp, the buyer and price are known when the ship departs from the country of production towards China, at least in the case of our forest companies. As a result, the pulp price achieved by at least Finnish forest companies during a quarter typically follows the development of market spot prices with approximately a one-quarter lag.
, highlighting Antti’s discussion about Metsä Board and the market in general 