2014. No Easier Path Ahead

No crystal ball is necessary to see that most industry segments do not envisage anything special ahead this year. In fact the industry, shipping and currency volatility is likely to continue especially in the first quarter with an additional 3 million tonnes of new pulp capacity coming on stream, and the overcapacity in both pulp and paper to continue until supply and demand starts to balances out in 2016. Possibly a day too far away for some who have had little joy with domestic mill closures and a strict tightening of materials quality definitions domestically and export during the past two years.

Whilst most businesses have trimmed their overheads since 2008 many costs or even economic deflation such as, labour, compliance, insurances, energy, water, fuel and banking are still increasingly impacting growth. Asian competition is also increasing and with export materials over fifty percent of the recovered materials market these Asian buyers are taking the next inevitable step into direct recovery and processing often with their own Government subsidisation. The bottom line is that Australasian banks are not getting any friendlier. Profits increases are unlikely to grow and alliance partners are in a similar position of minimising risk just to maintain the status quo.

As we know Asia remains the growth engine. Many large and small Asian mills are investing in more capacity, mainly tissue and packaging , whilst newsprint establishes its own minimal level, which will put sorting pressure on some waste paper items as maximum quality recovery limits start to peak due to cost pressures like the Green Fence into China starts to become a do or die.

It is also inevitable that 2014 will see more mergers and acquisitions especially by global resource recovery groups who have deep pockets to grow by acquisition from aging business owners possibly some even industry icons who see their strategic fibre supply business used by date rapidly approaching towards a more independent and association driven Y.I.T. supply in lieu a massive overhead to process materials many non fibre at a loss.

Profits will not improve without industry rationalisation and with a return to necessary industry specific segment education which appears to have disappeared in recent years due to cost cutting, education and training must be reintroduced for profit sustainability.

The new year is an opportune time to step aside from the daily grind and to look a few years ahead and to decide the path of least resistance to grow in a very tough and now stagnant industry following several years of true industry shrinkage.

Best wishes for 2014.


Graeme Holland

Managing Director