New opportunities unfolding in pulp and paper industry, but market pulp sector faces difficult times near-term, say speakers at BWPA/Hawkins Wright symposium during London Pulp Week
November 12, 2011
– Now is the time for pulp and paper producers to seize new opportunities, but there are immediate challenges for the market pulp sector, said speakers at the symposium hosted by the British Wood Pulp Association and Hawkins Wright Ltd. on Nov. 10, during London Pulp Week.
Providing the annual symposium’s outlook for market pulp, Oliver Lansdell of Hawkins Wright said the price correction underway now for commodities—not just pulp—reflects concerns that there could be a financial meltdown.
Noting that pulp behaves similarly to other commodities, Lansdell said as much as 60%-70% in changes in pulp prices are driven by macro factors and that micro factors, including supply/demand fundamentals, account for the remaining 30%-40%. “Today both the macro and micro drives are facing very strong headwinds,” Lansdell said. Noting the possibility of another global recession, he said that in every global recession since 1973, pulp market demand contracted or plateaued.
Unless there is a credible solution soon to the euro debt crisis, there will be further contractions in pulp demand in Western Europe through 2012, Lansdell said. Commenting that GDP forecasts are likely to be revised downward “as each day goes by,” Lansdell said the eurozone could be in for a two-year recession, “which would have serious implications for pulp moving forward.”
And he noted that the strengthening U.S. dollar is lowering mills’ production cost base, which could thus potentially delay market-related shuts, though some pulp producers clearly are at cash costs. Meanwhile, integrated paper and board producers are selling pulp to the market—a survey this week shows 20,000-40,000 tonnes/month, he said. Another consideration is whether pulp mills that have invested in power production have the flexibility to take downtime, he observed.
China accounted for more than 20% of global market pulp consumption in 2010, up from just below 15% in 2005, and the Chinese market is expected to rebound, albeit moderately from 2011 levels, Lansdell said. The Chinese government’s effort to bring down the inflation rate through tightened credit has caused an increase in borrowing costs and a decreased demand for pulp and commodities, although “on the positive side,” the country’s inflation rate has cooled off, Lansdell said.
State banks in China are loaning less money, leading to a black market in loans, many of which are priced at interest rates of 20%-30%-40%, which “is just not sustainable,” Lansdell said. Some companies have started using pulp as collateral for loans, he said, adding that with the decreasing value of pulp, there is an increased risk of default. Also many investors in China have put their money into property sectors, but property sectors are cooling off, he said, adding, “There will be a lot of bankruptcies in the next six months.”
Another speaker, Robert Wilson, senior director of Wilson, Walklate & Associates Ltd. in Surrey, England, said now is time for the pulp and paper industry in Europe to seize its chances.
Noting that some sources of energy, such as oil, will peak and decline, and that there is a shift to renewables, Wilson said the European pulp and paper industry can contribute to a coherent energy policy for Europe and that its mills are very well placed for biomass developments. “What better industry can there be?” he said. “No one is better placed than this industry to move forward.”
But he said a strategy must be in place and that there are not enough biomass resources today. Key factors are ownership, control, or the right to manage the biomass raw materials, supply chains, and producer sites.
“We are the Third Industrial Revolution,” he said, adding that by contrast, for example, two-thirds of the aluminum operations will have to shut. “We have the reverse problem—great energy, but where is it going?” Wilson said.
Presenter Duncan Pollard, sustainability advisor at Nestlé SA, who provided a buyer’s view of the pulp and paper industry, said consumers consider packaging waste to be a top priority and that his company uses “responsible sourcing guidelines,” with its “responsible paper packaging” focus on environmental management systems, waste, water, energy, and fiber.
Nestlé will ensure that there is no deforestation involved in all of its material sources from forested areas, he said. The company’s field-based approaches include reaching out to companies around the world and it has identified certain “higher-risk” pulp and paper producers in Asia.
Pollard commented that Nestlé has “a different relationship” with producers of plastic as compared to producers of paper. “Plastic (producers) want to sit down with us, work with us,” he said. “We don’t get the same from the paper industry.”
In other presentations, Wilhelm Feilmair, vice president of Lenzing AG, discussed trends in viscose fiber dissolving pulp, Gunnar Carré, vice president of pulp mill technology at Metso Paper Sweden AB outlined the trends and requirements for new pulp mills, and Sophie Aubert-Vidal of credit insurer Coface SA. discussed risk management issues.
Feilmair said that sustainable and reliable pricing for such raw materials as dissolving pulp is a must. The Sustainable Apparel Coalition, founded by leading apparel brands, retailers, apparel and fiber manufactures, pushes for universal standards and environmental and social performance, he said.
Carré said there was “a tremendous interest” in dissolving pulp mills when the prices ran up, but that the inquiries trickled down to nothing after prices fell. Nevertheless, he expects another two million tonnes/year of dissolving pulp capacity within two years.
Looking at pulp mills in general, Carré said equipment includes ever-bigger digesters and recovery boilers that are the same time more efficient. He said mills have been able to reduce by 50% the consumption of bleaching chemicals in the past 10-15 years, thus reducing costs.
Also the larger modern kraft pulp mills have an excess of energy, with black liquor becoming an important source of income for pulp producers and lignin being used as fuel in lime kilns, Carré said. “A pulp mill is a bio-refinery,” able to utilize bark and other biomass residuals, he said.
China has two large pulp mills based on using imported wood chips, which has its disadvantages, but the mills have the advantage of being close to their markets, Carré commented.