Sappi, Suzano Warn of Price Increases in Wake of Chilean Earthquake

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Sappi Fine Paper Europe, Brussels, Belgium, this week confirmed that the effect of the recent massive earthquake in Chile on the global supply of pulp will put additional pressure on it, and on the European paper and tissue industry as a whole, to raise prices. The Chilean pulp industry accounts for some 8% - 9% of world output and local suppliers are advising that most mills there will be out of action for at least one month. Extensive damage to the country's infrastructure has interrupted the supply of electricity and water to many mills, as well as wood and chemicals, and affected the transport of finished product to customers. In addition, the main harbor serving the industry at Concepcion has been severely damaged.

Sappi Fine Paper Europe CEO Berry Wiersum, noted that "even prior to the earthquake, pulp supply was proving to be a constraint to the industry in Europe, with global prices moving up in excess of 40% since April of last year. The industry now faces a severe lack of pulp, which Sappi believes will result in increased pressure for steep rises in dollar based pulp prices, exacerbated for European paper producers by the weakening Euro."

Meanwhile, pulp producer Suzano, Sao Paulo, Brazil, this past week said that global pulp prices will likely spike in the short term because the February 27 earthquake in Chile could cut inventory and output. Turnover in global pulp supplies, now at about 30 days, should decline amid a tighter market, Antonio Maciel Neto, Suzano's chief executive, said in a Reuters interview. Turnover rates are about 35 days in "normal times," Neto noted.

The global pulp and paper market is recovering after a deep tumble at the start of 2009, Reuters said, and companies around the world boosted output as prices rose worldwide. Producers raised prices in Brazil at least six times last year. Global pulp inventory fell to the lowest level in more than seven years at the end of the third quarter due to China's growing need for fiber to accommodate urbanization.

Hardwood pulp prices are around $750/metric ton and could rise to $800 in the short term, according to Itau Securities analyst Marcos Assumpcao, Reuters reported. Brazil and Chile are the world's largest producers of pulp, respectively.