BRUSSELS, Aug. 30, 2001 (paperloop.com) - The pressure of producing market pulp below cost is likely to provide its own outlet, according to a number of sources. Suppliers from North America's West Coast have been producing in the red for some time now and severe downtime will be forced upon them, providing the sharp slimming of inventories which is required for recovery. One supplier predicted, "It won't be long before we get better prices and conditions."
Suppliers in the southern states of the US and eucalyptus producers are suffering similarly unprofitable business. Southern pine is a rarity now in Europe, as the home market proves more attractive. And some South American eucalyptus producers have turned the supply tap off in Italy. But Italian activity has proved a reliable barometer for market direction in the past and it is the Italian buyers who are seeking fixed contracts for two to three months in advance now. This is reported to be spreading north.
There are rumblings in South America about a correction to the eucalyptus price. The weakened dollar means that Latin American eucalyptus priced in dollars is cheap compared with European volumes priced in euros. While producers are likely to wait at least until October for the market to see some post-vacation period momentum in the paper market, the intention is clear.
Major producers of northern bleached softwood kraft have indicated they intend to go no lower than $450/tonne, yet the possibility of $440/tonne in September was not dismissed by buyers or sellers. The FOEX benchmark is still slipping, albeit slowly, and there may be another $10/tonne to go before the absolute bottom is reached. This would drive out the spot market almost completely, in particular as prices in Asia are now at very similar levels to those in Europe. Pulp buying in Asia is said to have picked up thanks to the low prices. One supplier said, "The spot market in Europe seems more or less to have disappeared."
The effect of such low prices combined with any pick-up in woodfree paper sales could provide sufficient impetus for pulp prices to creep up again in the fourth quarter, according to one source. But he warned that if higher cost producers were encouraged by this to enter the fray at 100% production, it could pave the way for a rocky 12 months bumping along the bottom.
Norscan inventories are predicted to end August much as they did in July, which would be contrary to the trend for the month and set the scene for falling stocks in the fourth quarter, if demand picks up to anything like normal levels.