A strong bull market pulp that runs over years never appears to end. Capacity withdrawals normally initiate current upswings that began some years back. Strong demand, that is coupled with persistent supply disruption has continued to sustain the strongest market in years, while prices hit new heights.
There isn't much that has changed in this sector over the last few years. Prices continue to rise while demand remains solid and exchange rates are a having a great impact on producers and the sector at large. Ideally, this is the same situation that keeps recurring as years go by. But somehow, producers have greatly benefited from several months of rising prices as well as good demand. Generally, the past two years have been good thanks to such shifts in the sector.
The industry outlook continues to be favorable for the better part of the decade especially in 2007 and part of 2008. Capacity is flat to declining in some parts of the Americas and not as much in Europe. These exceptions continue to be some huge fresh capacity projects that have found their way online. With the general demand being solid, operating rates have remained favorable.
However, there are some major issues that need not to be overlooked as they can temper the strong pulp sector. Some of them include slow demand for major consuming markets, writing and printing papers and concern that the large run up in prices is pushing paper mills into financial oblivion. Otherwise overall, world paper demands is slowly moving up, backed/buoyed by the sustained and accelerating growth in most parts of Asia.
Other factors that are providing an increase in the prices include higher fiber costs, as well as energy costs. This surge in the costs of fiber is supposedly caused by long term supply issues and short term disruptions. Over the long term, this may support a higher trend line in the prices. The surge in board and paper demand in some parts of the world is driving a humongous appetite for both recycled fiber and virgin soft tissue and also pushing the prices up.
Surprisingly, Asia imports of wood-pulp shot to over a hundred and fifty percent to seven point five tons. Recycled fiber grades prices are also driven up by close to four hundred increase in imports at least in the past few years. On top of that, fiber supplies are being limited by some few structural factors and some short term supply disruptions.
The stimulating level of these prices is likely to begin to place a ceiling on just how far prices can go. Nevertheless, unless the United States economy sinks into a recession as a result of housing crisis, most mills in the country and other parts of the world can expect more great years in future.
Healthy demand in combination with weak US dollar in most parts of Europe and the strong Canadian dollar should be able to maintain momentum for producers. This is also projected to shot up pricing enough to counter the effect of low cost Latin American capacity set to be brought online that will fully hit the sector. This combination on a continuous basis for market pulp is definitely the safe bet to place for years to come.
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