Pricey pulp to lead to higher paper prices

Demand for pulp up even as producers face supply disruptions
Esther Teo Straits Times 24 Mar 10;

SINGAPOREANS should brace themselves for hikes in the cost of paper as a result of surging global pulp prices, the Singapore Paper Merchants Association (SPMA) has warned.

Supply disruptions in some of the world's largest pulp producing countries have coincided with a recovery in demand in countries such as China, SPMA president Chua Kee Teang noted yesterday.

Much of Chile's pulp capacity was taken out by the recent earthquake measuring 8.8 on the Richter scale, with mill production shut down due to power failure or for clean-up, repair and safety inspection.

The supply from Chile accounts for 8 per cent of global pulp capacity and is one of the key factors to ensure price stability.

In Finland, several mills had been brought to a standstill by a dock strike staged earlier this month, which had halted shipping into and out of the country, Mr Chua said. Although ended by a new wage deal inked last week, the dispute has succeeded in temporarily crippling the industry.

North American pulp producers have been unable to pick up the slack, with wet weather conditions making it difficult for farmers to harvest the raw material, which has slowed pulp supply dramatically.

Ms Joanne Lam, sales director of Hiap Moh Paper, said several American mills had already informed her that they will no longer be able to supply her company with paper because of the supply problems.

Most consumers, she added, were unaware of this 'critical situation'.

Industry players are predicting an increase of about 10 per cent for the price of paper and packaging over the next three to six months as reductions to the supply of pulp - used to manufacture newsprint, fine paper, magazine paper and cardboard - begin to be felt by markets.

Pulp prices have already risen by more than 40 per cent over the past year, according to SPMA.

It expects the price of woodfree paper to rise to between US$970 (S$1,360) and US$1,070 per metric tonne in the second quarter of the year, compared to between US$780 and US$800 for the same period last year.

Speaking in Mandarin, Mr Chua said: 'Prices are controlled by the market and there has been increasing demand worldwide...Current prices make me a little nervous, but with the cost of raw materials going up, consumers should be prepared for further increases in the prices of paper products.'

Mr Jackson Wong, assistant general manager of paper trading firm JPP Far East, said that the price of all paper products had already risen 15 per cent to 20 per cent since the beginning of the year.

The upward pressure on prices has been heightened by the very low level of pulp inventories around the world, he said.

Those who buy on a spot basis, such as publishers of textbooks and periodicals or purchasers of photocopying paper, will be most hit by increases, he said.

Newsprint publishers will see a gradual rise because their long-term purchasing will mean exclusive agreements with larger paper mills, he added. Their substantial use of recycled paper will also mitigate this increase.

SPMA noted that certain overseas mills had recently decided to cease supplying pulp to Singapore paper merchants, while others had refused to rule out further price increases due to 'exceptional circumstances'.

'Especially in this situation, mills are starting to get particular in the consistency of purchase... They want bigger buyers who can pay higher prices,' Mr Wong said.

Any immediate hike in the price of education textbooks seemed to be ruled out by the Ministry of Education (MOE) when contacted yesterday. It said that it had contractual agreements with publishers that fixed the prices of educational materials.

'Publishers will have to abide by the agreements and are not allowed to raise prices without seeking permission. Changes to prices can be made only on a yearly basis and MOE does not allow for month-on-month fluctuations,' a spokesman said.

However, if the trend of rising pulp prices persists and the costs of production increase, the publishers will renegotiate with MOE and it will then assess if it is fair to increase the price, the spokesman added.

MOE said, however, that it will continue to ensure that educational materials remain reasonably priced.