Soft Pulp Markets to Continue Weakening Fiber Costs

According to Wood Resources International (WRI), Seattle, Wash., USA, the global pulp market is currently mired in uncertainty. The market is uncertain, for example, when China will move into the buying mode, where the European economy is heading, and whether low spot prices for softwood market pulp will push pulp mills in Europe and North America to take market-related downtime.

In this environment, WRI says, pulp mills are trying to squeeze their costs to remain competitive and to be able to run at full capacity. Because, according to Fisher International, wood fiber costs currently account for 52% - 71% of total production costs, depending on region of the world, the primary focus in cost-cutting has been on reducing the price mills pay for wood chips and pulpwood over the past six months.

This has created the situation in which many fiber suppliers have been forced to accept lower prices for their fiber. As a consequence, wood fiber prices fell throughout the world in the 1Q/12, which caused the two global wood fiber price indices to decline to their lowest levels in more than a year.

WRI's Wood Resource Quarterly report shows the Hardwood Wood Fiber Price Index (HFPI) experienced the biggest decline, falling by 3.5% from the 4Q/11 to $109.67/odmt. Since its all-time high last fall, the HFPI has come down 7% in just two quarters. Wood costs were down the most in Europe and Japan. The price premium for hardwood fiber over softwood fiber is currently the lowest since 1Q/11.

In addition, the Softwood Wood Fiber Price Index (SFPI) fell a more modest 0.4% from the previous quarter, which was 4% lower than in the spring of 2011. Softwood fiber price trends were mixed, with increases in Oceania, Chile, and the U.S. South and falling prices in Europe, Western Canada, and Japan.

Softwood chip prices in British Columbia fell 25% from the previous quarter, according to WRI's North American Wood Fiber Review, and are currently 18% lower than last fall when prices were at a 16-year high.

In Europe, softwood pulp log prices fell 1% - 6% in local currencies in the 1Q/12 compared with the previous quarter, and are now back down to price levels last seen in 2010.

With continued soft pulp and paper markets during the second quarter, wood fiber costs are likely to continue to weaken in many key markets around the world in the coming months, WRI concludes.

More information is available online.

TAPPI
http://www.tappi.org/