Weaker pulp markets see chip and pulp log prices fall

The global pulp market is mired in uncertainty: uncertainty when China will move into buying mode, uncertainty about where the European economy is heading and uncertainty if low spot prices for softwood market pulp will push pulp mills in Europe and North America to take market-related downtime.



In this environment, pulp mills are trying to squeeze their costs to remain competitive and to be able to run at full capacity. Because wood fibre costs currently account for between 52-71 percent of the total production costs depending on region of the world (source: Fisher International), the primary focus in the cost-cutting has been on reducing the price they pay for wood chip and pulpwood prices over the past six months.



This has created the situation in which many fibre suppliers have been forced to accept lower prices for their fibre. As a consequence, wood fibre prices fell throughout the world in the 1Q/12, according to the Wood Resource Quarterly, which caused the two global wood fibre price indices to decline to their lowest levels in over a year. 



The Hardwood Wood Fibre Price Index (HFPI) experienced the biggest decline, falling by 3.5 percent from the 4Q/11 to US$109.67/odmt. Since its all-time high last fall, the HFPI has come down seven percent in just two quarters. Wood costs were down the most in Europe and Japan. The price premium for hardwood fibre over softwood fibre is currently the lowest since 1Q/11.



The Softwood Wood Fibre Price Index (SFPI) fell a more modest 0.4 percent from the previous quarter, which was four percent lower than in the spring of 2011. Softwood fibre price trends were mixed, with increases in Oceania, Chile and the US South and falling prices in Europe, Western Canada and Japan. With continued soft pulp and paper markets during the second quarter, wood fibre costs are likely to continue to weaken in many key markets around the world in the coming months.



Source: Wood Resources International LLC, www.woodprices.com