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Thu Mar 8 05:57:21 EST 2018

Unbleached kraftliner prices rise across Europe amid solid demand, tight supply

BRUSSELS, March 8, 2018 (PPI Europe) - Unbleached kraftliner prices increased across Europe in
February as producers benefited from positive market fundamentals and rising testliner prices. Sellers,
however, had to compromise, getting only part of the desired Euro 50-60/tonne hike they were seeking
due to a better paper availability situation compared to last year and the price increase developments in
the testliner segment, where the hike implemented in February on the continent did not exceed Euro
40/tonne.

In Germany and France, the majority of market participants saw a Euro 30-40/tonne increase, with some
sources saying that they agreed on a Euro 50/tonne hike, adding, however, that a higher increase was
rather an exception.

A couple of sellers said that it was not easy to push for a full increase since certain suppliers initially
announced a lower price increase to their customers, while some others aligned the kraftliner hike
amount with the testliner one. One producer also said that he did not feel like putting pressure on his
clients because “margins in the paper industry have already been comfortably high after last year’s
increases.” A couple of sources also mentioned that following last year’s hikes, which reached a total of
Euro 140-150/tonne, the price gap between kraftliner and testliner had become too large. They said that
given that, they would prefer to wait till the testliner prices increased more before pushing for more
kraftliner increases.

In Italy, market participants have seen no increase in prices for deliveries in Q1, but said that they expect
a hike of up to Euro 20/tonne to come into force in April, possibly followed by another one in May.

“In Italy, the price hike for kraftliner normally comes in smaller steps than in the rest of Europe as the
price trend is mostly dictated by overseas suppliers. Shipments at higher prices are not expected to
arrive before the end of March though,” one local market player said. Italian contacts said that shipments
from North America are arriving in Italy with a bit of a delay this year.

The UK market has seen the largest kraftliner price increase this year, with the levels jumping by £40-
50/tonne between the second half of January and mid-February. Local market players felt that supply
has been exceptionally tight, with buyers saying that sellers could apply any increase they wanted.

Looking ahead, market players said that they expect relative price stability at least until June, even
though supply is expected to remain tight. Sources explained that with demand growth in the US, North
American producers are unlikely to offer more volume to European customers, while in Europe there is
no new capacity scheduled to come online at least in the next two to three years. Additionally, Smurfit
Kappa will reduce its production volume at its 500,000 tonne/yr brown and white kraftliner Facture mill in
France in the coming weeks. At the end of February, the firm stopped the mill for 20-23 days of
maintenance. During the stoppage and the ramp-up period, the Facture mill is expected to lose some
40,000 tonnes of production volume.

White liner prices rise: Prices for white-top kraftliner started rising in the second half of February across
Europe. The increase of up to Euro 50/tonne is expected to be finalized in March for most market
players, sources said. Contacts said that there has been a variety of deals on the market, including the
implementation of the increase in two steps in February/March.

Contacts among producers said that demand has been exceptionally strong this year, adding that this
was the main reason most sellers went on to push for nearly the full amount of the announced increase,
which ranged between Euro 40-60/tonne.

“In the coated and uncoated white kraftliner segment we predict demand growth above 5% this year.
Given there is no new capacity in sight, the market fundamentals are very positive for producers,” one
major supplier said.

Several sources also pointed out that paper availability might worsen in a few weeks if the restart of
SKG’s Facture mill is delayed.

“The Facture shut is expected to tighten the [white kraftliner] market, if the start-up is pushed back. We
are already looking for alternatives to cover for a possible hiccup,” one large buyer said.

While there are no new white kraftliner machines currently on the cards, there are three large projects
which are being implemented on the white testliner side in 2018-2020. Leipa is nearing the start-up of its
450,000 tonne/yr white-top testliner machine PM 5 in Schwedt. In 2020, Mondi is expected to launch its
300,000 tonne/yr white kraft-top testliner machine at its Ruzomberok mill in Slovakia, while Hamburger is
set to start up a new 500,000 tonne/yr white-top testliner machine at its Spremberg mill in Germany (see
story on page 9.).

SC fluting prices increase: Semi-chemical (SC) fluting prices rose in February across Europe, mirroring
the development on the recycled fluting side. In most cases, SC fluting producers applied an increase of
Euro 30-40/tonne. Contacts among sellers said that they were satisfied overall with the achieved hike.
Sources among buyers said, however, that the increase could have been higher, if sellers had been
more aggressive.

“The market for SC fluting is very tight, but producers are quite soft on their customers as they went for a
hike which is more in line with recycled fluting. But if sellers asked for a higher increase, they would have
got it,” a large buyer said.

Some market players noted that they expect extreme supply tightness in Q2 amid seasonally high
demand and an extended production stoppage at Stora Enso’s Heinola mill. Some contacts among
buyers said that they are having difficulty finding extra volume for deliveries in the coming weeks and
intend to replace some virgin fiber-based fluting with high-performance recycled fluting or to try ordering
paper outside of Europe. According to market sources, Stora Enso is set to stop the 300,000 tonne/yr
mill for five weeks starting the second half of March. The firm will revamp the mill’s washing process area
to improve paper quality and strengthen its competitive position. Heinola’s paper capacity is also
expected to rise by 15,000 tonnes/yr.

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