Warning Signs Ahead
02-10-2014

Unfortunately history too often repeats itself and it has been six years since the GFC. Whilst we have not experienced any boom period since 2008, there are some worrying signals ahead. Namely:

The mineral resources boom has severely reversed

China is still increasing its board manufacturing over capacity and domestic waste paper recovery

Finished product inventories are high, consequently raw material demand remains low

Newsprint consumption is still shrinking as ONP quality worsens

Pulp prices remain flat

Bulk waste paper grade prices are struggling with pulp substitutes flat

 

The question remains, is this just a seasonal cycle or a prolonged recession where many organisations will flounder, unemployment will increase and interest rate increases may follow? These days we do not have massive price swings. The Chinese do not want it and suppliers know their costs and when to say no. What we have learnt is that the profit margins do struggle in a flat market when it becomes a level playing field and forward selling has few benefits.

The weakening A/NZ$ and Australasian shorter supply lead times has more attraction than longer lead times from the northern hemisphere for Asian buyers, who want to maintain low raw material inventories. Some ocean freight rates are also being discounted so hopefully the bottom line for packers will not suffer too much. 

Looking at Q4 and into early 2015 we can expect the odd brief demand spurt, but overall sluggish times ahead.

 

Graeme Holland

Managing Director