Global hardwood pulp producers face higher wood fiber costs, lower pulp prices

The global demand for market pulp has been weakening for the past four months, particularly that of hardwood pulp (BHKP), according to a Wood Resource Quarterly report. The market report Pulpwatch reports that global shipment of BHKP pulp fell from 1.76 million tonnes in June to 1.41 million tonnes during July. Although shipments picked up to 1.57 million tonnes in August, the outlook for the next six months is for lower demand and reduced pulp production as compared the first half of 2011. Hardwood pulp prices (BHKP) have fallen steadily during the fall and were down by 26 per cent from June to the early November, according to FOEX. At the same time as pulp prices have fallen, the wood costs have increased, which has squeezed the profit margins for many producers of hardwood pulp. Wood cost as a percentage of the Eucalyptus pulp (EuBKP) price has gone up steadily for five consecutive quarters, from 23 per cent in the 2Q10 to 32.2 per cent in the 3Q11, as reported in the Wood Resource Quarterly. The relative wood cost is currently substantially above the twenty-year average of 23 per cent. 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 US$117.91odmt, an increase of 14 per cent since last summer and an all-time high, according to the Wood Resource Quarterly. Conversely, The Softwood Wood Fiber Price Index (SFPI) fell by less than one percent to $108.90odmt, which was the first decline since the 2Q10. 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 HFPI for 21 of the past 24 years; it is only the past three years that HFPI has been sold at a premium, and the 3Q11 premium of US$9.01odmt is the greatest to date.