Global hardwood pulp producers face higher wood fibre costs and lower pulp prices

Seattle, USA. The global demand for market pulp has been weakening for the past four months, particularly that of hardwood pulp (BHKP). The market report Pulpwatch reports that global shipment of BHKP pulp fell from 1.76 million tons in June to 1.41 million tons during July. Although shipments picked up to 1.57 million tons in August, the outlook for the next six months is for lower demand and reduced pulp production as compared the first half of 2011.

Hardwood pulp prices (BHKP) have fallen steadily during the fall and were down by 26 per cent from June to the early November, according to FOEX. At the same time as pulp prices have fallen, the wood costs have increased, which has squeezed the profit margins for many producers of hardwood pulp. Wood cost as a percentage of the Eucalyptus pulp (EuBKP) price has gone up steadily for five consecutive quarters, from 23 per cent in the 2Q/10 to 32.2 per cent in the 3Q/11, as reported in the Wood Resource Quarterly. The relative wood cost is currently substantially above the 20–year average of 23 per cent.

Pulp mills in Brazil, Indonesia, Japan, China and Chile saw the biggest increases in hardwood fibre prices the past year, while the rise in wood costs in North America and Europe have been more modest. The Hardwood Wood fibre Price Index (HFPI) rose for the fifth quarter in a row, reaching US$117.91/odmt, an increase of 14 per cent since last summer and an all-time high, according to the Wood Resource Quarterly. Conversely, The Softwood Wood fibre Price Index (SFPI) fell by less than one per cent to $108.90/odmt, which was the first decline since the 2Q/10. In addition to the exchange rate adjustments, wood prices also fell in the local currencies in Russia, France and Spain.

 The Softwood Wood fibre Price Index has been higher than HFPI for 21 of the past 24 years; it is only the past three years that HFPI has been sold at a premium, and the 3Q/11 premium of US$9.01/odmt is the greatest to date. This is of note because over the past few years, some softwood pulp producers had switched to hardwood or invested in hardwood pulp capacity to take advantage of historically lower hardwood fibre costs and higher profit margins. In light of these recent price and cost developments, producers might consider returning to using more softwood pulp in their product mix, whether for market pulp or in their integrated pulp and paper facilities.   

Global timber market reporting is included in the 52-page quarterly publication Wood Resource Quarterly. The report, established in 1988 and with subscribers in over 25 countries, tracks sawlog, pulpwood, lumber and pellet prices and market developments in most key regions around the world.

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