Papermakers Expect Price April Price Increases to Hold

Weyerhaeuser Co., Georgia- Pacific Group and other companies, barely able to meet demand for paper pulp, are almost guaranteed that the 6 percent price increase they set for April will be successful, analysts said, according to a report by Bloomberg.

The forest-products companies last month announced the planned increase of $40 per metric ton for pulp they don’t use to make their own paper. The price now is about $645 a metric ton. Bowater Inc., Champion International Corp. and Pope & Talbot Inc. also set similar increases in February.

Expanding economies in Europe and Asia means papermakers there are ordering more from North American companies, among the world’s primary sellers of pulp. Pulp demand is so strong that it could approach "panic conditions" in the second quarter, Merrill Lynch & Co. analyst Anna Torma said.

"There simply is not pulp available," Torma said.

While the pulp sellers said they’re able to fill orders now, some said they can’t produce much more. U.S. pulp and paper makers, wary of repeating the glut in 1995 and 1996 that cut pulp prices in half, have limited their three-year spending plans on new plants and machine upgrades to the lowest level ever, according to the American Forest & Paper Association, a trade group.

Cause and Effect

Price increases have been fueled by demand from Europe and Asia, where economies in some countries are growing at their fastest rates in the last five to 10 years. The price of the benchmark pulp grade over the past year has risen 40 percent on the Finnish Options Exchange, where pulp prices are set daily. In turn, the price for paper used in offices and to make boxes has risen as much as 35 percent.

Profit at Weyerhaeuser, the world’s biggest seller of pulp, will benefit from increasing prices, as every increase of $50 a metric ton adds 35 cents to per-share earnings, Merrill Lynch’s Torma said. Pope & Talbot, Rayonier, Bowater and Georgia-Pacific also will benefit. Prices will to rise to at least $700 a metric ton, or $55 more than now, by the end of this year, Torma predicted.

Papermakers in Europe, where trees aren’t plentiful, face the greatest threat to their pulp supply because they rely on North American pulp producers, who don’t have much to offer now, Credit Suisse First Boston Inc. analyst Mark Connelly said. Still, Wisconsin-based Consolidated Papers Inc. buys pulp and is watching the market carefully, spokesman Tim Laatsch said.

"Everybody in the industry is concerned," Laatsch said.