Global Conditions Putting Pressure on Pulp and Paper Markets

Aug. 3, 2011 - Summer doldrums? Slowing growth in China? Uncertainty around U.S. budget discussions? A bit of all the above???

According to Deutsche Bank's weekly Dr. Paper's Pulse on Pricing report, there are signs that global conditions in many pulp and paper commodities have grown more challenging in recent weeks.

Mark Wilde, senior analyst at Deutsche Bank covering the paper and forest products sector, sees the issue as far more acute offshore than in the domestic market (U.S.). "Reports from Asia and the Middle East suggest prices on market pulp, white paper, containerboard, and boxboard have all come under increased pressure in recent weeks," Wilde said.

Uncoated Free Sheet (UFS)

Repro bond estimated prices rose $5-15/ton to $1,075-1,130/ton in July, -1.6% year/year. So far, producers have implemented $30-35/ton out of the $60/ton June 1 price hike. While demand remains weak, higher prices are aided by supply cuts, lower inventories and favorable trade flows. In offset papers, estimated prices are up only $25 of a $40/ton April 1 price hike.

"Looking ahead, a key variable will be the extent of pulp price declines. If pulp falls sharply, it could ripple over into UFS prices," Wilde noted.

Old Corrugated Containers (OCC)

Export OCC to China appears to have dipped $2-3/ton in the last couple of weeks. Year-to-date export OCC prices have been at record levels. The recent decline is mostly due to lower-than-expected packaging demand in China. In the U.S., OCC jumped $15/ton to $177/ton (+43.9% y/y) in July.

"It's not hard to see why OCC prices have been so healthy in 2011 — thru May, U.S. OCC exports were up 82.3%," Wilde added.

SOURCE: Deutsche Bank