Investments in market pulp industry will force 'massive changes' on demand and supply sides, price differentials to lead to further fiber substitution; China remains key driver, Hawkins Wright's Tom Wright tells audience in London

Diane Keaton

LONDON , November 13, 2012 (Industry Intelligence Inc.) – The following report is from a speech presented on Nov. 8 at the thirteenth annual British Wood Pulp Assn./Hawkins Wright Symposium during London Pulp Week. The five speakers specifically addressed the global economy, trends in fine paper and tissue, the outlook for market pulp, Chinese pulp and paper trends, and the future of the print medium. Industry Intelligence has posted reports today on each of the five presentations.

A key issue for the market pulp industry concerns investments, which “will come and force massive changes on the demand and supply sides,” said Tom Wright of Hawkins Wright.

And there are consolidation questions, including when it will happen in South America and whether it will happen in the Chinese paper industry, given that in the latter, “everyone is losing money,” he said.

Market pulp supply and demand are fairly balanced now, and in absolute dollar terms, the startup this month of the 1.5 million tonnes/year bleached eucalyptus kraft pulp (BEKP) Eldorado Brasil mill may have a smaller impact than expected, said Wright.

In fact, as a rule, supply may have less influence than people think because prices are mostly moving with the depreciation of the dollar, he said.

This is not to say that the impact of supply increases “is not huge,” Wright said.

He noted that the sometime large price differentials between softwood kraft, hardwood kraft, and high-yield pulps can stimulate change, “so we still see a lot of substitution,” he said.

He said the industry is flexible and innovative, and that there will be continued substitution of eucalyptus pulp for softwood and other hardwood pulps, “even” for high-yield pulp.

Conversions to dissolving pulp through 2014 will add up to 2.790 million tonnes or more, he added.

Also he said demand for market pulp will grow while demand for integrated pulp will fall. With 382.8 million tonnes of fiber (recycled, market pulp, integrated pulp) expected to be consumed in 2012, 4.5 million tonnes of new pulp “might not seem so scary,” he said.

The mature and emerging markets each account for about half of the 56 million tonnes/year pulp market, Wright said, but mature market demand has fallen by 5.6 million tonnes since 2007 and is currently lower than it was in 2000, while emerging market demand has grown by 9.2 million tonnes and now accounts for 50% of global demand.

China, which accounts for more than 25% of the overall market, “is absolutely critical” because without China, the industry would be declining despite growth in India and other countries, he said.

Though China’s economy has been decelerating—a deliberate effort by the government to slow its growth—its exports are picking up and the economy is expected to bottom in the last quarter and accelerate through the first quarter, Wright said. The government is approving project growth, but China’s consumption growth is gradual, he said.

China’s bleached softwood kraft pulp (BSKP) demand outstrips that of bleached hardwood kraft pulp (BHKP). China has been increasing its own pulp production to reduce its exposure to market pulp, and consequently, hardwood pulp imports are likely to be lower this year than they were three years ago, Wright said.

Meanwhile, affordability of printing and writing paper grades is a key issue, so it is a challenge for the new capacity to be absorbed, Wright said.

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