The forest products industry has been one of the most difficult markets over the past several years. Slumping pulp prices put tremendous downward pressure on pulp substitutes and many other paper stock grades. This year, however, there is a new sentiment. Surging pulp prices are propelling pulp subs and deinking grades such as sorted white ledger to much higher levels. The question many are asking is whether the improvement will hold next year.
Cause and Effect
According to the most recent figures from the Bureau of Labor Statistics, prices for wood pulp have been on an upswing the past several quarters. Although still down from earlier in the decade, the present trend seems to be pointing to an upward incline. Anecdotal evidence points to recovering Asian economies as a driver for much of this strength. As Asian mills start to run better schedules, much of the excess pulp has been absorbed.
The strength in pulp markets is translating into better prices for many of the recovered fiber grades that are substituted. Grades such as hard white shavings and cuttings are in high demand. Climbing prices for pulp substitutes is causing some tightness in the market, with North American and Asian mills competing for a limited amount of material.
The price increases could continue for the next several quarters as pulp prices continue to improve. Along with the increase, the supply of material has been strengthening. Canadian pulp mills reflect this improvement, with July production figures up 9% from the same time last year.
With expectations that prices could continue to strengthen through the end of this year, there could be better news for the pulp substitute market through early next year. Due to the natural substitution afforded by many of these direct entry pulp sub grades, as pulp prices have climbed, demand continues to climb. While benefiting many brokers of these grades, the improvement is moving down the grade ladder, enhancing the price value of many of the deinking grades such as sorted white ledger.
Many Asian mills are reentering the U.S. market looking for more pulp subs. This has caused part of the surge in prices. There also appears to be continuing strength by North American mills.
While the improvement in market pulp has helped improve the movement of pulp substitutes, there also is some strengthening due to the better prices for deinked market pulp. Improving deinked pulp is allowing mills to run better schedules.
With a resurgent pulp market, mills are finding the market for the finished product more amendable. Increased demand for recycled-content pulp is strengthening, allowing mills to increase production runs, as well as raise prices for their finished product.
One of the biggest beneficiaries has been SWL. Prices at the mill had been as low as $100 to $120 earlier this year. However, with the demand from domestic and offshore interests, prices are topping the $200 per ton level. The impact is wide reaching. More mills are looking to add this grade with their raw material furnish.
Domestic paper stock dealers also are reporting domestic mills becoming more aggressive with their purchases. Some of the largest tissue manufacturers are seeking out larger lots of sorted white ledger, as well as office pack and coated book for their intake. The move has been one of the most surprising trends taking place the second half of this year. A number of vendors earlier this year expected to see a softening second half of 1999. However, if the present form continues next year could be a continuation of the run.
A Dealer Outlook
Paper stock dealers and brokers are long accustomed to the changing whims of the industry. A grade that may be “the hot” grade, could fall out of favor. That definitely could happen with some deinking grades. Despite the possibility of prices dipping, the breadth of the improvement is giving vendors confidence that the strength will last for longer than a few months.
While these improvements are helping augment an otherwise strong office grade market, the need for cleaner material is keeping demand strong. Demand appears to be strong for most grades, which expectations that prices for many of the deinking grades could continue to strengthen through the rest of this year.
The author is editor of Fibre Market News.