Hardwood pulp capacity expansion in Asia will put prices under further downward pressure

BOSTON, MA, Dez. 17, 2010 (RISI) - The pulp market has come off the boil in recent months, with the bleached hardwood kraft (BHK) market clearly weakening more than the softwood (BSK) market. Pulp prices were widely expected to drop in the first-half of the year, and early on there were signs that this was beginning to happen. But the Chilean earthquake in February idled 9% of world market pulp capacity overnight and sent prices spiraling upward, especially in the domestic pulp market in China. Now, all but one of the earthquake-rocked Chilean pulp lines are back on stream and over 800,000 tonnes of market pulp capacity in Canada has restarted in the past two quarters. With growth in pulp demand lagging behind capacity growth, the shipment/capacity ratio has fallen and producer inventories have moved up significantly over the past two months, to 34.7 days in October, which is at least two days above average.

We have recently developed information out of Asia that indicates there is likely to be further pain in the months ahead for producers of BHK in particular. Specifically, there have been some supply-side surprises in China and Indonesia, and these surprises have all been in the direction of more capacity rather than less. The key developments that we are watching are these:

* In China, April's new BHK line in Shandong Province turning out to be a much larger line than was initially reported when it started up at the beginning of the third quarter this year

* In Indonesia, where reliable information about pulp operations is relatively scarce, April is ramping up a third pulp line at its Riaupulp mill in Sumatra

* Finally, in a odd piece of timing, the Kertas Nusantara mill in Kalimantan, Indonesia, has fired up again, after sitting idle since third-quarter 2008

What all of this means is that the BHK market could see an additional 1 million tonnes of BHK production in Asia in 2011, compared to earlier forecasts. Asia's demand for imported BHK will be lower than expected, and the effects will be felt worldwide.

This is an excerpt from a full story that is available in RISI's Pulp & Paper News Service