Whilst we still believe that prices should level off or bottom out by year end it still remains uncertain how to guesstimate what the future dollar level might be in early to mid 2012, remembering that in the 2008 crash the turning point was year end or early 2009 for a gradual price which only began to accelerate in Q3 onwards, twelve months after the crash.
Published pulp prices are indicating $700 for UKP (unbleached kraft pulp) and BSKP (bleached softwood kraft pulp) with BHKP (bleached hardwood kraft pulp) at $600. If we consider that in the last 2008 GFC that BHKP fell to $400 we can expect that in 2011 it could reach $500 - 525.
Whilst waste paper utilisation is around 55% in most countries leaving pulp at 45% the volatility of recovered paper has reduced since 2008 as generation has slowed. Meaning that waste paper price reductions are lagging pulp decreases which is the opposite to what we normally expect.
The reality still remains that fibre yield must always influence price, so looking at the three main groups of secondary fibre we can calculate the following export price levels based upon pulp price forecasts:
Pulp substitutes $160 - 350 (subject to the grade)
Newsprint $140 - 160
Packaging $90 - 140
These selling prices will be close to the 2006/2007 selling prices when the AUD was significantly weaker. Ocean freight rates are also being discounted as they historically occur during recessions which does offset a small part of the losses for exporters at the shipping line expense.
As Asian mill inventories remain comfortable, exporters can only expect buyers to buy spot to test market price levels until they feel that the bottom has been reached. Year End Chinese licence renewals will soon have an influence for deliveries prior to January. If China does not place orders in November it may be late December before they can.