Brief analysis on Stora Enso's withdrawal from dissolving pulp business

On Mar 29, Stora Enso said in an interview with local media that it would consider exiting dissolving pulp business. However, the exact exit time and way has not been announced. After entering dissolving pulp industry, Stora Enso has always been China's high-quality raw material supplier and has established good partnership with Chinese companies. Given that Stora Enso already has 430kt/yr of dissolving pulp unit and the supply to China is on the rise, the announcement of withdrawal has attracted more market attention.

According to customs data, Chinese mainland imports 172.4kt of dissolving pulp from Finland in 2020, accounting for 6% of total imports. Finland takes the eighth place in terms of import volume among all of origins.In terms of destinations, Finland's dissolving pulp is mainly supplied to Xinjiang, which is followed by Hebei and other eastern provinces.

According to the monitoring data, China's pulp supply has been generally tight since Jul 2020. Although dissolving pulp supply has started to increase steadily entering 2021, the short availability has maintained till now. The sudden withdrawal announced by Stora Enso arouses further worries over the already tightness of dissolving pulp supply. If Stora Enso exits immediately, it will be difficult for its downstream buyers to obtain adequate substitutes in the short term. Of course, there is huge new capacities in South America currently and future supply will be theoretically abundant, but the transition before full release of South American's new capacities is still a problem.

In addition, different conclusions can be drawn from the perspective of softwood and hardwood pulp. New capacity invested in South America is mostly hardwood dissolving pulp and the supply and demand pattern of hardwood dissolving pulp may improve in the future, but softwood pulp supply is still short worldwide. In recent years, Stora Enso is the exclusive company that has increased the supply of softwood dissolving pulp on a large scale. Chinese companies generally expect bigger increment of softwood pulp by Stora Enso in 2021, but if the pulp mill moves away from dissolving pulp production, the expectation will not come true.

From the demand side, the global lyocell capacity is expanding rapidly at present. Except for individual companies that can use hardwood pulp as raw material, most enterprises need to use softwood pulp as feedstock, leading to the competition for softwood dissolving pulp. We have noticed that since the beginning of 2021, major European softwood pulp mills have reduced supply to China due to various reasons. Besides the competition by lyocell, Chinese VSF companies have continuously improved the differentiation rate in recent years, and the demand for softwood pulp by differential VSF is much higher than that by ordinary VSF. A few fibers even need to fully use softwood pulp as raw material, which further compresses the supply of softwood pulp for ordinary VSF.

If Stora Enso leaves dissolving pulp market, the imbalance of softwood pulp may exist for a longer time in the future. Of course, most Chinese VSF companies are able to entirely use hardwood pulp as raw material, but the possible result is falling production efficiency and quality fluctuation.

However, there are still many uncertainties in the withdrawal of Stora Enso. We believe that Stora Enso as a company with a long history will try its best to achieve a smooth transition of industrial chain partners from a responsible perspective, and we will keep following the issue.