- UPM hosted a Pulp market and demand growth update this week: The update focussed on the pulp market and expected demand growth; the UPM growth project in Uruguay and their commercial strategy driving growth.
- Growth outlook for pulp is driven by robust LT megatrends: Global megatrends are expected to outlast transient disruptions and shocks, which will drive demand for pulp. Key global megatrends include population growth (incl. urbanization and middle-class expansion); resource scarcity; digitalisation and e-commerce; and wood-based textiles. Key transient disruptions and shocks include the decline in graphic paper demand; virgin pulp replacing recycled fibre in growing end uses; improved hygiene standards; and new adopters of e-commerce.
- Market pulp consumed in growing end-uses (alternative white fibre demand) is set to overcome graphical paper decline: Total fibre consumption in 2020 was 421mt, comprised of: Containerboard: 46%; Graphic Papers: 19%; Tissue & Fluff: 12%; Cartonboard: 12% and Specialty: 11%. Growth driven from Tissue (>80% of incremental fibre growth), Cartonboard and Specialty is set outpace the decline expected from graphic papers (-4-5% p.a.).
- UPM believes confirmed pulp projects are moderate and are mainly focussed on BHKP: UPM estimates that at least 1.7mt of pulp capacity exits the market on an annual basis, which further tightens the pulp supply/demand outlook post 2025. Furthermore, it is becoming more challenging to find competitive locations for pulp mills globally.
- UPM’s pulp product mix development continues to grow for both softwood and hardwood (total pulp capacity: 5.8mtpa planned): Their softwood capacity is set to have increased by 38% (from 1.2mt to 1.6mt) at its Finnish mills and is premised on solid demand driven by its performance in furnish and increasing overall demand for fibre-based products. Their hardwood capacity is set to increase by 45% (from 2.6mt to 4.2mt) due to the Uruguay Paso de los Toros mill investment.
- Biggest investment in UPM’s history, Paso de los Toros in Uruguay driven by strong LT fundamentals: Planned ramp-up remains on track for Q1 23E, with a steep ramp-up curve expected due to the pulp production process over a 6-12m period to reach 2.1mtp of eucalyptus pulp. Encouragingly, despite an inflationary environment, the mill remains extremely world class cost competitive with an expected cash cost level of $ 280/t delivered to China (spot implied EBITDA margin: 67%).
- UPM’s commercial strategy is focussed on China but ready to capture growth in all regions: In 2022, bleached chemical pulp demand is expected to reach c. 66.4mt, with China comprising 36% of this demand, followed by Europe (26%) and North America (12%). The global south is the engine for pulp demand growth and the rise of other APAC enables UPM’s diversification of sales.
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