Craig Murphy, Director and Global Service Lead for Bleaching Chemicals at Chemical Market Analytics by OPIS, framed his presentation around four regional stories — Latin America growing, China increasingly self-sufficient, North America in managed decline, and Europe under pressure — and traced how those trends are reshaping demand for the chemicals that pulp mills depend on to cook and bleach wood fibre. Running through all of it is the Strait of Hormuz closure, which has created supply disruptions and cost pressures now working their way through chemical markets in ways the industry is still absorbing.
Craig Murphy
Latin America, Murphy said, is the unambiguous growth engine. Low-cost, fast-regenerating fibre combined with the newest and most efficient mill equipment gives the region a structural cost advantage driving both pulp capacity expansion and chemical demand growth. Caustic soda — used in the kraft cooking process to break down wood chips and separate lignin from cellulose — has grown approximately 21% in Latin American demand over the past five years. Sodium chlorate, the feedstock used to produce chlorine dioxide, which is the primary bleaching agent in modern kraft mills, has followed a similar trajectory. He pointed to the Pulp Valley region of Brazil as the centre of that growth, with Arauco’s new mill — approximately 60% constructed, with a capacity of 3.8 million tonnes per year — among the projects still coming, and a further 12 million tonnes of projects reportedly in permitting in the region.
A significant development Murphy highlighted is that Latin American mills are increasingly producing their own bleaching chemicals rather than importing them, through what he called the chemical island model. Sodium chlorate production is electricity-intensive — consuming 4.5 to 5 megawatts per tonne — making electricity cost the dominant factor in where production locates. Kraft mills generate substantial surplus electricity from black liquor combustion in the recovery boiler, and Latin American mills in particular are using that electricity to produce sodium chlorate and hydrogen peroxide on site. Suzano’s chemical island produces more of both than the mill requires and sells the surplus, and Brazil has in the past two years become a net exporter of sodium chlorate. That shift is displacing traditional export volumes from Canada and the Nordics, which together dominate global sodium chlorate production. Canada’s position in that market is significant — the country produces approximately 70% of North American sodium chlorate supply, a dominance built on historically low electricity costs, with the bulk of that production exported south for use in US kraft mills. Both Canada and the Nordics have seen operating rates soften as Latin American self-sufficiency has grown.
On China, Murphy reinforced what other speakers noted — domestic self-sufficiency is growing across chemical supply chains as well as pulp. The Hormuz closure created an acute caustic soda shortage in parts of Asia, through a chain of consequences Murphy walked through: caustic soda cannot be produced without simultaneously producing chlorine, and chlorine requires a safe end market — primarily polyvinyl chloride, or PVC — to be handled and stored. When the closure disrupted petrochemical feedstocks in Asia, PVC production slowed, chlorine had nowhere to go, and caustic output had to be cut, creating a supply gap of approximately 150,000 tonnes. China was able to partially offset the disruption by switching to a coal-based production process for PVC, reducing the effective shortfall to around 80,000 tonnes and leaving Thailand, Japan, and South Korea as the most exposed markets. The episode illustrated both the vulnerability of Asian chemical supply chains to Hormuz disruption and China’s unusual ability to insulate itself through domestic process flexibility.
Hydrogen peroxide — used in bleaching and increasingly in mechanical pulping — is facing a different kind of supply pressure. High-purity hydrogen peroxide is also a critical input in semiconductor chip manufacturing, and growing demand from that sector is creating competition for supply that pulp producers will need to monitor. In Europe, hydrogen peroxide producers are already attempting to raise base prices, compounded by higher costs for precursor chemicals sourced from Asian markets affected by the Hormuz closure.
North America, Murphy said, is in intentional decline on the chemical demand side. Packaging producers have been deliberately exiting export markets to focus on the large domestic market, and graphic paper consumption continues its structural decline. Closures at Domtar, Canfor, and Georgia-Pacific have been among the primary drivers of reduced chemical demand across the region. Despite stable domestic production costs, caustic soda prices in the northeastern US are rising — a logistics problem rather than a supply problem. European and Asian producers who previously shipped caustic into Baltimore and New York have redirected those volumes elsewhere, and domestic rail infrastructure lacks the capacity to move Gulf Coast caustic north quickly enough to fill the gap, pushing regional prices up independently of production costs.
The steepest phase of that decline, however, appears to be levelling out. The wave of mill closures that drove the sharpest reductions in North American chemical demand has largely run its course, and the rate of decline is stabilizing.
Europe, Murphy said, is under pressure from energy costs, US tariffs, high fibre costs, and competition from South America for China’s attention. The Ukraine conflict accelerated Europe’s shift away from natural gas for electricity generation, and Europe has reduced that reliance to approximately 15% — providing more insulation from the Hormuz closure’s energy price effects than might otherwise have been expected. Nordic sodium chlorate producers are operating at low rates, though the energy picture there is less difficult than it was two years ago.
On exchange rates, Murphy made a point with direct implications for competitive dynamics: a Brazilian pulp producer selling into the US market is currently receiving approximately 23% more in Brazilian reais than in recent prior periods — a significant additional cost cushion that North American and European producers cannot match. He closed his formal remarks with a note of caution on Latin American investment: many of the region’s pulp projects were conceived when bleached eucalyptus pulp prices were substantially higher than today, and the returns for some investors may prove challenging at current market prices.
In the Q&A, Kelly McNamara asked which chemical market carries the greatest risk of supply disruption or price volatility for pulp producers. Murphy’s answer was sulfur — a core input to the kraft pulping process, used throughout the chemical cycle that converts wood chips into pulp and in the production of key bleaching chemicals. It is a market already under structural pressure before the Hormuz closure, and one the closure is now compounding. Global sulfur supply is largely a byproduct of oil refining and cannot easily be expanded, while demand is rising from multiple directions simultaneously: a major Indonesian nickel project is consuming large volumes, and the effective elimination of acid rain through pollution controls has removed a natural source of sulfur replenishment for agricultural soils, creating new fertilizer demand that previously didn’t exist. A low inventory signal from China was among the early price triggers. For pulp producers, Murphy said, sulfur is the chemical risk most worth watching in the current environment.
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