Europe's pulp and paper industry faces pressure this year on pricing because of weak demand; more downtime might be needed to improve oversupply conditions, bolster prices, says Fitch Ratings

Audrey Dixon

LOS ANGELES , February 15, 2012 (Industry Intelligence) –

Weak demand and an oversupply is hanging over the pulp and paper industry in Europe this year, following a decline in conditions in the fourth quarter of 2011, according to a statement released by Fitch Ratings, reported Reuters on Feb. 15.

After a relatively healthy 2011, pulp prices began to drop and demand for certain grades of paper began to decline in the last three months of 2011. However, the negative price trend bottomed out in January.

Attempts by pulp producers to raise prices in January met with resistance, resulting in only marginal increases in prices since December. Overall pulp prices in Europe are lower than the average for 2011, Reuters reported.

The average price for northern bleached softwood kraft (NBSK) pulp, for instance, is now US$830 per tonne compared with $950/tonne in fiscal year 2011, Fitch Ratings stated.

(Forestweb has reported that for Northern Europe, the NBSK list pricie was at $830/tonne in January and that some buyers are pushing for slight reductions for February business. However, hardwood pulp pricing increased in January by $30-$40/tonne, bringing bleached eucalyptus kraft pulp, or BEKP, to about $680/tonne, and BEKP is expected to reach the announced list price of $730/tonne in February, according to Forestweb.)

Printing paper demand remains low but pricing is somewhat better than it is for pulp. Price hikes this year are being maintained due to several permanent capacity closures last year, totaling 2 million tonnes/year. Although no price increases are planned, prices are stable, reported Reuters.

Advertising, which is a major driver for publishing paper demand, is expected to grow modestly this year and its contribution to publishing could drop further. Further deterioration of macroeconomic conditions in the eurozone could adversely affect ad spending, however.

Although Europe’s pulp and paper industry continues to reduce capacity and restructure as a hedge against economic uncertainty, producers might have to take more downtime in first-half 2012, Fitch indicated.

Still, Fitch expects that it will not have to downgrade its ratings for Stora Enso Oyj and UPM-Kymmene Oyj, which it said have enough leeway in their financial metrics, Reuters reported.

The primary source of this article is Reuters, London, England, on Feb. 15, 2012.

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