The Indonesian Pulp and Paper Producers Association reports
that a market glut had driven international pulp prices down to as low as
US$350 per metric ton, paling in comparison to the $550 demanded only six
months ago.
``Given the market glut, with an excess supply of 2 million
tons, and the slow down in the American and Japanese economies, the pulp market
is likely to remain very weak this year,'' Mansur, chairman of the association,
added in a statement.
Mansur said that the sudden and harsher than expected
cooling off of the U.S. economy, the world's largest paper consumer, which
started last November, had slashed demand for paper and, as a consequence,
demand for its basic material, pulp, had also slumped.
``This depressed market is certainly affecting the cash flow
of Indonesian pulp producers (notably the Sinar Mas and Riau Complex),'' he
said.
Moreover, Mansur said, Indonesian pulp producers have a weak
bargaining position because, with a combined annual production capacity of only
5 million tons, they only capture about 2 percent of the world market.
``It is no wonder that the position of Indonesian pulp
exporters is mostly as the price taker,'' he added.
Worse still, according to Mansur, the domestic market has
virtually collapsed since the 1997 economic crisis, cutting down the per capita
paper consumption from 17 kilograms, already among the lowest in the world, to
as little as 8 kg now.
The association is, however, confident that the downcycle
will not last for many years.
Mansur said that, as the supply glut would most likely
impose market discipline and keep capacity expansion under control, the pulp
industry could expect to emerge from this depressed condition within the next
two to three years at the most.
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Indonesia's pulp industry, he argued, also has a comparative advantage over its competitors in Europe and the U.S., who produce softwood pulp, because industrial timber estates here can be harvested within seven to eight years, compared to 30 years in the case of softwood trees. – WorldSources Inc.
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