Acetate Dissolving Market Pulp Is Booming!

• Analysis by: Dave Hillman

Summary

China, Indonesia and India are leading the surge in demand for the acetate dissolving pulp from which rayon fabric is produced. Spot prices in the 2Q were at $1600/admt vs. a list of about $1150-1250/admt. In the 3Q list prices were raised to $1350/admt. Now rumor has it that producers will announce a whopping $200/admt price hike on January 1st to bring the list up to $1550.
The former Canadian NBHK mill, Thurso, has restarted and is upgrading to dissolving pulp...and is already 75% sold.

Analysis

While dissolving pulp is not an easy pulp to produce because it demands both a high Alpha cellulose content (6 carbon polymers vs. hemicelluloses' 5 carbon chains which dissolve easily in caustic and are then sewered), low ash content, high purity (very low heavy metals) and very uniform degree of polymerization (dP), there are fewer than a dozen market pulp mills in the world producing this grade. The most costly drawback to producing dissolving pulp is the low yield. Whereas commodity papergrade pulps require 4 mt of chips to produce one mt of pulp, dissolving pulps require 5-6 mt. Given a choice, few mill managers would opt for any pulp grade requiring that much additional wood supply. In 2008/09 the lower quality dissolving pulps (i.e. borderline Alpha cellulose content) were selling for barely $200/admt more than papergrade pulps. Consequently there was little incentive to even consider spending the money to upgrade to dissolving pulps.

Today the two (very) low cost producers are both eucalyptus based....RGM's BahiaPulp in Brazil (350,000mt/year) and SAPPI-Saiccor's mill near Durban, South Africa (830,000mt/year). In North America there are five older (softwood based) mills:
Tembec at Temiscaming, Que, Neucel at Port Alice, BC, Buckeye at Foley, FL and Rayonier's two mills at Jesup, GA and Fernandina, FL. In Europe Bouregaard has mills in Norway and Austria. There is also some dissolving pulp being made from acacia in Indonesia (Inda Kiat).

The question many will ask is: when list prices reach $1600/admt on January lst (if those rumors really are true), and spot prices are even more than that, won't there be a mad rush by many mills to switch over to dissolving pulp? While the accountants and CFOs would recommend this, the technical and operating managers will no doubt be very negative.....it's a very expensive and time consuming process. There's a far better chance that the existing mills will all want to consider major expansion programs.

The former Thurso mill (near Hull, Que) is already 75% presold under long term contracts and they aren't anywhere near to making their first tons....and those contracts are for earth-shaking terms of 5 and 10 years! Four years ago the Indian company Aditya Birla purchased the former Parsons & Whittemore mill at Nakawic, NB and upgraded its 190,000mt/year to rayon grade dissolving pulp for shipment back to India. No doubt they consider this one of the wisest investments they could have made!

Dave Hillman consults with leading institutions through GLG

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Dave Hillman

Independent Consultant, Dave Hillman