Tight Supplies: Helping to Drive Up Chemical Costs
By Pulp & Paper Canada
By Pulp & Paper Canada
Last year’s recovery in chemical markets mirrored the improvement in the pulp and paper sector. Ample supplies and sluggish markets kept prices in check in early 2002. A combination of strengthening d…
Last year’s recovery in chemical markets mirrored the improvement in the pulp and paper sector. Ample supplies and sluggish markets kept prices in check in early 2002. A combination of strengthening demand and higher raw material and energy costs drove up chemical prices late in the year.
Not only did chemical costs rise, but the excess supplies that existed at the start of the year dried up. Supply/demand balances became snug by the end of 2002. In the case of caustic soda, customers were put on order control.
With little new chemical capacity expected to come on stream this year, supply/demand balances will remain tight in 2003. This will continue to put upward pressure on chemical prices.
Consumption of pulping chemicals increased last year, aided by modest gains in pulp production. Domestic mills operated at 90% of capacity as total pulp output rose 2% in 2002. Production of chemical pulps grew by 3% to approximately 13.3 million tonnes, while mechanical pulp production grew by 1%.
Barring a major downturn in the economy, pulp production should continue to grow this year, aided by capacity additions.
Skeena Cellulose, a wholly-owned subsidiary of NWBC Timber and Pulp, is preparing to start up its pulp mill in Prince Rupert, BC, [ed. note: as New Skeena] with production scheduled to begin on March 1, 2003. The company acquired the northern bleached softwood kraft pulp mill in April.
Tembec acquired the Chetwynd high yield pulp mill in northern British Columbia from Louisiana-Pacific. The mill, with a capacity of 160 kilotonnes/yr, has been idle since April 2001. Tembec will invest $20 million in process and equipment modifications to restart the mill by January 2003. The additional production will boost Tembec’s total pulp capacity to 2.4 million tonnes/yr.
Following Stora Enso’s acquisition of Consolidated Papers in September 2000, the North American paper market began a prolonged downturn, prompting the company to initiate a plan to improve profits. As part of the plan, the company intends to expand the thermomechanical pulp line at Port Hawkesbury, NS, and shut down the groundwood and high-yield pulp operations at the site.
The caustic soda market underwent a dramatic turnaround in 2002. At the start of the year, the soft economy and ample supplies drove prices downward. The supply/demand balance tightened considerably in the second half, which led to price increases in the third and fourth quarters.
Fortunately for pulp mills, the price hikes were more than offset by the price decreases early in the year. Overall, prices declined by about 15-20% in 2002.
The North American caustic supply has tightened appreciably due to the combined effect of multiple planned and unplanned outages and increased demand from bleacheries. An estimated 1 million tonnes/y of capacity was taken off line last year. In Canada, Dow Chemical idled one small unit in Fort Saskatchewan, AB. Caustic producers were forced to put their customers on order control in response to the tight supply/demand balance.
With little relief expected in the supply situation in the near future, caustic soda prices will continue to rise in 2003. Pulp mills can expect an increase of nearly 10% at the start of the year, followed by additional increases. Prices for caustic could rise by 15-20% during 2003.
The recent increases could be the start of a long-term upward trend in caustic prices. Producers were unable to justify investments in new chloralkali capacity because of soft pricing in the past. With demand for the chemical growing and little new capacity coming on stream, caustic prices will continue to rise steadily over the next two years.
The turnaround in sulphur markets was equally dramatic in 2002. Abundant supplies of sulphur and lower phosphate fertilizer production, the main market for sulphur, caused prices to fall to historically low levels in 2001. Phosphate fertilizer markets improved last year, creating a sulphur shortage. The very tight sulphur supply/demand balance put upward pressure on prices throughout the year. By the end of 2002, spot prices were about 60% higher than at the start of the year.
The outlook for sulphur depends heavily on market conditions for phosphate fertilizer. Early indications suggest farmers will increase their crop plantings this year, boosting demand for phosphate fertilizer. As a result, the supply/demand balance for sulphur will remain tight, which could lead to a further 10-15% rise in sulphur prices in 2003.
Prices for other pulping chemicals have been more stable. Sodium sulphate suppliers raised their prices by about 10% at the end of 2002, with most of the increases scheduled to take effect early this year. The recent price hike for salt cake is the first increase in more than a year. Following implementation of the latest increase, prices should remain flat for the remainder of 2003.
Despite the closure of Saskatchewan Minerals’ Ingebrigt, SK, facility two years ago, sodium sulphate markets remain balanced. The company has been increasing production at its Chaplin, SK, site and now has capacity to produce about 125,000 tons/yr at that location.
Sulphur dioxide prices were steady in 2002 and will go up by a modest amount this year to adjust for inflation. Supplies will be balanced to long.
Bleached pulp tonnages grew last year, which resulted in increased consumption of bleaching chemicals. Output of bleached softwood kraft rose 3% in 2002, while output of bleached hardwood kraft rose 4%.
Increasing production of bleached pulps and higher raw material and energy costs put upward pressure on prices last year and mills can expect additional increases for 2003. Sodium chlorate prices were stable through most of last year, but prices rose 4-5% in the fourth quarter. The increase reflects higher energy costs, primarily electricity. A similar price hike is expected in mid-2003.
In addition to higher prices, pulp mills will have to cope with snug supplies of sodium chlorate this year. Nexen Chemicals did complete its expansion at Brandon, MB, early last year, two quarter ahead of schedule. The project added 70 kt/y of sodium chlorate capacity to the market. However, this new capacity was offset by chlorate shutdowns in the U.S. With North American chlorate plants running at 95% of capacity, small changes in either supply or demand could create shortages for the bleaching chemical this year.
One of North America’s leading sodium chlorate suppliers is about to change hands. Sterling Chemicals is selling its pulp chemicals business to Superior Propane for US$375 million in cash as part of its restructuring plan.
Sterling filed for Chapter 11 protection in mid-2001. The recent transaction has the support of the company’s major creditors and Resurgence Asset Management, which has agreed to provide $60 million of new equity as part of the reorganization.
Superior Propane is acquiring the leading worldwide supplier of chlorine dioxide technology and one of the top three producers of sodium chlorate in North America. Sterling also produces sodium chlorite, caustic soda, chlorine, hydrochloric acid and calcium hypochlorite. Sterling Pulp Chemicals is headquartered in Toronto and has plants in Grand Prairie, AB; Saskatoon, SK; Thunder Bay, ON; Vancouver, BC; Buckingham, QC, and Valdosta, GA. The pulp chemicals business will continue to operate under the Sterling name in the short term, but is expected to change its name.
Pulp mills can also count on higher prices for hydrogen peroxide this year. Prices declined early in the year, but suppliers raised their prices by 4-5% late in the year because of higher fixed costs and eroding margins. An additional increase of 3-5% is expected in the second half as producers try to boost profit margins to support investments in new capacity.
With North American peroxide plants operating close to 90% of capacity, markets are currently balanced. The startup of new capacity will ensure that the supply of peroxide remains in balance with demand. FMC, which idled 35 million pounds/y of capacity at
Prince George, BC, in 2001, brought the unit back on stream in the first quarter of last year. Over the long term, Atofina is expanding its Becancour, QC, facility by 50%. The project should be completed in 2004.
While additional peroxide capacity came on stream in Canada last year, a significant amount of sulphuric acid capacity came off the market. Acid supplies were plentiful at the start of 2002, but supply disruptions at eastern Canadian smelters caused the merchant market to tighten considerably by the end of the year.
Weak metal markets prompted Noranda to close its Gaspe smelter in Murdochville, QC, in April 2002. The complex produced 220 kt of sulphuric acid in 2001.
At the end of 2002, unionized employees were still on strike at Noranda’s Horne copper smelter in Rouyn-Noranda, QC. The company continues to operate the smelter at more than 70% of capacity, employing 120 non-union staff and managers at the site. The facility can produce more than 600 kt/y of acid.
Noranda also says it will operate its Brunswick smelter for eight months each year because of the weak forecast for the lead market. The facility will be shut down for four months each year, beginning in July 2003. The shutdown will also reduce the supply of acid from that site.
The tight supply/demand balance and higher sulphur costs drove up acid prices by more than 15% late last year. Tight supplies and good demand from the industrial sector will continue to put upward pressure on prices this year. Prices are projected to rise by 5-10% in 2003.
Increases in alkali, energy and transportation costs led to a 4% hike in sodium silicate prices in the fourth quarter of last year. Another increase of 3-4% can be expected in the second half of 2003.
The market for sodium hydrosulphite was affected by many of the same factors that influenced other bleaching chemicals. Higher energy and raw material costs, primarily caustic, and tight supplies resulted in a 3-4% increase in sodium hydrosulphite prices last year. A similar increase is anticipated for 2003.
Chemtrade Logistics of Toronto will purchase Clariant International’s North American sodium hydrosulphite (SHS) business for US$62 million. The deal includes production plants in Leeds, SC, and Kalama, WA. Clariant also markets all of the sodium hydrosulphite produced at Somavrac’s Trois Rivieres, QC, facility.
Chemtrade provides sulphur removal services for chemical plants, metal smelters and oil refineries and markets sulphur-based chemicals such as sulphur dioxide. The company is the largest North American supplier of SO2, while Clariant’s SHS business is currently its largest SO2 customer. As a result, the purchase provides Chemtrade with an outlet for a large portion of its sulphur dioxide volumes.
Pulp mills saw their oxygen costs rise by 6-8% late in the year and can expect prices to increase by at least 5% in 2003. Higher raw material, labour, health care, liability insurance premiums and fuel costs are the driving forces behind the price hikes.
Although the supply/demand balance for oxygen is snug, many mills are shielded because they get their supply from on-site plants. Large users find it more economical to source their supply from an on-site facility.
Chlorine went through some major changes last year. Prices declined early in the year, then increased by well over 10% in the second and third quarters, and finally stabilized late in the year. The supply/demand balance was tight as weak markets for co-product caustic limited the supply of chlorine in the first half. In addition, end use markets, led by vinyl, were strong. This created a tight supply of chlorine. Prices for chlorine in 2003 will depend on the strength of vinyl and caustic markets. Further increases of 5-10% are likely if vinyl demand remains strong.
Last year’s increase in consumption of papermaking chemicals reflects the rise in paper output. Newsprint production remained flat in 2002 as domestic mills ran at 90% of capacity. Output of other types of paper grew by 2%, led by higher output of printing and writing papers.
Despite relatively soft markets for paper over the past two years, domestic mills continue to invest in new capacity. A consortium consisting of Tembec, the Fonds de solidarite FTQ and SGF-Rexfor will invest $465 million to reopen the Gaspesia mill in Chandler, QC, and convert it into a 200-kt/y high-gloss coated paper plant. Startup is scheduled for early 2004.
Kruger and Societe generale de financement du Quebec will spend $493 million to modernize the Wayagamack mill. The project includes installation of a new $100-million coated paper machine capable of producing 200 kt/y of lightweight and ultra lightweight coated paper for magazines, catalogues, flyers and advertising inserts. Other elements of the project include modernizing the existing paper machines and improving the groundwood and kraft pulping processes and auxiliary systems.
Kruger is spending $116.4 million to upgrade the Scott Paper mills in Lennoxville, QC, and Crabtree, QC. The company is installing a new paper machine and two winders for hygienic paper and automating a wrapping line at Crabtree. The upgrade of the No. 5 paper machine in Lennoxville includes the addition of a new wet end. Work is expected to be completed in the summer of 2003.
Scott Paper has also completed the first phase of a $12-million expansion project at its converting facility in Calgary, AB. The installation of a new converting winder doubles the previous output of the facility to 1.5 million cases of tissue products per year for distribution across the Prairie provinces.
These investments will more than offset the closure of paper machines last year. Domtar permanently shut down three paper machines, eliminating 80,000 tons/y of capacity. The company closed its No. 2 and No. 3 machines in St. Catharines, ON and transferred production of some of the printing and writing papers at the site to facilities in Espanola, ON; Ottawa-Hull and Wisconsin. The company also shut down the No. 1 paper machine in Nekoosa, WI.
In most cases, prices for papermaking chemicals experienced moderate gains last year. Titanium dioxide prices rose 6 cents/lb in the spring and fall, for a total increase of 12 cents/lb. The cost of pigment in 2003 will depend on how successful paper companies are in raising their lightweight coated paper prices and on general economic conditions. Titanium dioxide prices will probably increase another 5-10 cents/lb this year.
On the supply side, pigment inventories have declined, but supplies should be enough to satisfy demand from paper mills. The market will be balanced for most of the year.
Prices for styrene-butadiene latex rose steadily last year. Higher butadiene and styrene monomer costs, which went up 40-45%, forced producers to hike latex prices in the first, third and fourth quarters of 2002. SB latex price increases totaled about 15 cents/dry lb last year. Additional smaller price hikes are likely for 2003 driven by higher raw material costs.
Although there is sufficient SB latex supply to meet demand, styrene shortages could restrain latex production. Overall, the market should be balanced for 2003.
Aluminum sulphate prices were relatively stable last year, but there were some regional price hikes. Ample supplies and little growth in demand should result in only modest price hikes for alum in 2003, probably in the 2-3% range. Mills will have no problem buying alum this year as supplies are plentiful.
Calcium carbonate prices rose 3-8% early in the year, with the increases varying according to product and region. Another increase of 2-7% will take place in early 2003. Kaolin prices are also going up by 2-7% at the start of this year.
Kaoclay resources of Halifax, NS, and its wholly-owned subsidiary, Sparta Kaolin, are working with JM Huber to advance a kaolin deposit in Georgia and South Carolina into commercial production. The first phase involves testing to determine which products offer the greatest value, followed by a full-scale production run. The companies will then decide whether or not to devel
op the property.
Alternative Green Energy Systems will test its KDS machines at Atlantic Packaging’s Whitby, ON, paper mill. The system will be used to de-water Atlantic’s bio-solids/sludge waste stream. Inert non-combustible clay will be separated from the existing fiber, leaving a kaolin clay by-product that can be sold or recycled back into the paper making process. If the 180-day trial run is successful, Atlantic will purchase up to six production-scale KDS machines.
Imerys Pigments and Additives introduced a new series of Contour paper coating clays in the spring of last year. The Contour 1000 series targets the coated publication market, while the Contour 2000 series targets the coated paperboard sector.
A number of key acquisitions took place in the specialty chemical segment last year. Raisio Chemicals and SNF France joined forces to market functional polymers to the paper and board industry. Under the agreement, SNF purchased Raisio’s polyacrylamide emulsion plant in Trois Rivieres, QC, as well as Raisio’s 50% interest in Emerillon, a joint venture between the two companies that produces acrylamide polymers. SNF continues to produce functional polymers and other specialty chemicals for Raisio at the Trois Rivieres site. Polyacrylamides act as drainage aids to accelerate dewatering of pulp slurry on the papermaking screen.
Eaglebrook of Canada purchased the water treatment chemicals business of Sternson last year, making it one of the top three North American suppliers of coagulants in North America. The acquisition included Sternson’s SternPAC polyaluminum chloride plant in Brantford, ON. Eaglebrook’s product line now includes PAC, alum, iron chlorides, iron sulfate, polyaluminum sulfate and sodium aluminate.
In a move that launched General Electric into a new market, GE Specialty Materials acquired the water treatment business of BetzDearborn from Hercules for US$1.8 billion. Hercules retains the paper process chemicals business and continues to distribute BetzDearborn’s water treatment products to the pulp and paper industry. P&PC
Joe Piccione is vice-president of Camford Information services, Toronto, ON.