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Hardwood Pulp Producers Face Higher Fiber Costs, Lower Pulp Prices

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The global demand for market pulp has been weakening for the past four months, particularly for bleached hardwood kraft pulp (BHKP). The market report Pulpwatch, Seattle, Wash., USA, reports that global shipments of BHKP pulp fell from 1.76 million tons in June to 1.41 million tons during July. Although shipments picked up to 1.57 million tons in August, the outlook for the next six months is for lower demand and reduced pulp production compared with the first half of 2011.

Hardwood pulp prices (BHKP) have fallen steadily during the fall and were down by 26% from June to early November, according to FOEX. At the same time that pulp prices have fallen, wood costs have increased, which has squeezed profit margins for many producers of hardwood pulp. Wood cost as a percentage of Eucalyptus pulp (EuBKP) price has gone up steadily for five consecutive quarters, from 23% in the second quarter to 32.2% in the third quarter, as reported by the Wood Resource Quarterly (WRQ), Seattle. The relative wood cost is currently substantially above the 20-yr average of 23%.

Pulp mills in Brazil, Indonesia, Japan, China, and Chile saw the biggest increases in hardwood fiber prices the past year, while the rise in wood costs in North America and Europe have been more modest. The Hardwood Wood Fiber Price Index (HFPI) rose for the fifth quarter in a row, reaching $117.91/ovendry metric ton (odmt), an increase of 14% since last summer and an all-time high, according to the WRQ.

Conversely, the Softwood Wood Fiber Price Index (SFPI) fell by less than 1% to $108.90/odmt, which was the first decline since the second quarter of 2010. In addition to the exchange rate adjustments, wood prices also fell in the local currencies in Russia, France, and Spain. The SFPI has been higher than the HFPI for 21 of the past 24 years. Only during the past three years has HFPI been sold at a premium, and the third quarter premium of $9.01/odmt is the greatest to date. This is of note because during the past few years, some softwood pulp producers had switched to hardwood or invested in hardwood pulp capacity to take advantage of historically lower hardwood fiber costs and higher profit margins.

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