Does our industry have a short term upside?
19-08-2013

Unfortunately our industry has seen its best days. It peaked in early 2008 and with every month passing the highs are fewer and the lows are more frequent. We are no longer going to survive with cheap product obsolescence. Consumer spending is becoming more discerning and technology is continuing to have an impact on both packaging and paper consumption.

Virgin and secondary fiber prices are struggling to gain any strength, simply because of the over capacity of finished products which must see more manufacturers close globally before the efficient manufacturers can again be rewarded. In Australia since 2003 we have seen Spearwood in WA close,Burnie and Wesleyvale mills in Tasmania,Fairfield in VIC,Kane Tissue, two Botany machines,part of Shoalhaven in NSW,  two Norske machines in NZ, and AmcorPetrie scheduled to shut this September in QLD. Who will be next?The outlook is very tough, not that it has ever been easy.

 

A worthwhile industry barometer is good old newspaper consumption followed by stationery sales which include copy paper. Newsprint has been declining only in recent years but now negative consumption is accelerating. The pending merger of Office Max and Office Depot in America and the closure of a few retail outlets is further evidence of where this industry segment is heading and what the consequences will be. This highlights that both residential and commercial consumption will continue to suffer. Discounting is occurring at every level which makes the conditions even worse.

Industry sales are softening in all product groups, so there is no escape, only survival. Less consumption means less waste with more competition in the short to medium term at a time when quality claims are increasing with the prospect that only fully integrated mills will survive. The Chinese government cannot subsidise their paper manufacturersforever.

The industry has few mentors remaining who have lived through major industry changes since the Whitlam 1974 credit squeeze. Every recession has historically been followed by a bullish cycle. Recent bearish cycles have been 1992-1994/5, 1997/8 -2005,then the GFC in 2008. All were short economic cycles and fiber consumption increased. The question from 2014,which is shaping up as a long global recession,must be:if Australian consumption declines 3-4% a year ( 160,000 tonnes + ) is it best to get out early a little beaten up or potentially get wiped out without a new business model and with essential strategic partnerships to take advantage of inevitable opportunities which can arise?