Indices follow the pulp market

​To help understand pulp price levels at any given time, indices that track price development are key tools for buyers and sellers alike. Their significance increases at a time of heightened market volatility.
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  • 2021, Pulp, Markets and trends

Indices are used to monitor price movements in the pulp market. Fastmarkets FOEX PIX indices are most commonly used on the European pulp market. One monitors the prices of long-fibre pulp (Northern Bleached Softwood Kraft Pulp, NBSK) and the other short-fibre pulp (Bleached Hardwood Kraft Pulp, BHKP). There are also dedicated indices for the Chinese and North American markets.

“The PIX indices are based on pricing data gathered from both buyers and sellers. Since we are an independent operator in the pulp market we collect data from both parties”, explains Fastmarkets FOEX’s Director Lars Halén.

The PIX indices are updated weekly. Fastmarkets FOEX does not provide exact figures on the matter, but according to Halén, price data representing by estimation roughly half or more of market pulp volumes in Europe is provided on a regular basis for calculation of the index.

“Our sample size is large enough to calculate a comprehensive and reliable index. In order to guarantee our impartiality, an external auditor regularly reviews the processes we use,” states Halén.


Pulp pricing data collected from buyers and sellers

In the PIX indices, the price of pulp is given in US dollars per tonne. Prices collated in the European indices are the gross prices agreed between buyer and seller, and do not include any discounts provided by the pulp seller.

“The major weakness of gross price-based indices is that no one has actually made a transaction at the reported price. Consequently, the indices do not tell external parties the actual price level of pulp, but pulp trade professionals can use the indices as a reference in transactions,” explains Petri Jokinen, a partner at consulting firm Jay Partners.

The PIX indices have a short delay in reacting to pulp market price changes. On the other hand, indices that monitor spot prices in the pulp market are quite sensitive to change.

Such indices include the TTO indices published by Trade Tree Online. There are TTO indices for long- and short-fibre pulp (North America, Europe, and China), as well as global indices covering fluff, dissolving, and BCTMP pulps. One of the founders of TTO, Fraser Hart, explains that the company has been carrying out monitoring since 2016.

“We wanted to offer an option that provides a comprehensive and up-to-date picture of net pulp prices. Spot prices allow pulp to be traded at current market prices, so TTO reacts to even small changes in pulp supply or demand.”

TTO’s data comes from buyers and sellers who report confidentially each month on pulp batches traded and the prices involved.

This pricing data is then adapted into index values using a standardised calculation method. The base period for the TTO indices is May 2016, when the index value was 100. For example, in May 2020 the TTO index value for long-fibre pulp in Europe was 159, which means that the price had risen 59 per cent from the index’s starting point.

Spot trade of pulp focused on developing economies

Fraser Hart says that, depending on the market situation, TTO indices are used by both buyers and sellers who do not want to base their transactions on indices that react more slowly to market developments.

Parties purchasing pulp on the spot market include paper product producers, who unexpectedly need more pulp than can be provided under their agreement with their pulp supplier. In turn, pulp producers sell excess pulp to the spot market if they have more pulp than is required by customers under contract.

“A large proportion of pulp on the open market goes to emerging economies, where local pulp buyers make shorter-term agreements, because demand for the end product can vary from month to month,” explains Hart.

Pulp prices cannot be predicted from the past, since they are naturally affected by more factors than just their history.

Volatility hinders pulp price forecasting

Both Fastmarkets FOEX and TTO are independent operators that do not provide forecasts on pulp pricing trends. However, indices are used by analysts monitoring the pulp market to help them estimate the market in the future.

With many years of monitoring the pulp market under his belt, Petri Jokinen states that forecasting pulp prices has never been easy. In recent years it has become even more challenging, due to increased price volatility.

“Pulp prices cannot be predicted from the past, since they are naturally affected by more factors than just their history. Of course, you can predict that if a price has been high, it is likely to fall. However, no one knows when this will actually happen.”

By Jokinen’s estimate, the primary factor behind the increase in volatility is the growth of China into one of the world’s largest pulp buyers.

“The role of speculative buyers in the market has grown, and they aim to buy more pulp than they need when prices are low."

Changes in the supply of pulp also amplify volatility. Jokinen believes that in recent years there has been an increase in supply shocks for a variety of reasons.

“In particular, the market pulp industry in the Northern hemisphere has generally underinvested, making supply more susceptible to technical disturbances. The price of pulp has also been affected by mild winters in northern regions, making it more challenging to arrange sufficient raw material supply for pulp mills.”

This article was originally published in Fibre Magazine issue 2021–2022.