How Deep & For How Long?
It may appear that we have only recently experienced a rapid correction in both global demand for fibre and price correction, however this has been turning since March 2008.
Historical records show that with this downcycle, we will remain in a trough for up to two years e.g. the last major correction was 2004-2006 and before that 1997-1998, this period being a severe negative cycle when sale prices were well below costs for both pulp and recovered papers.
Generally speaking, recovered fibre traditionally weakens prior to pulp by a couple of months and recovers after pulp price increases.  This cycle will be no different, but hopefully prices will only fall to a more balanced average level as experienced from 2002-2004. This is based on the fact that pulp prices will not be allowed to collapse as they have done in all other negative cycles as both high energy and transport input costs can no longer be absorbed.  Finished product pricing is only now starting to be profitable for some producers so mills during this cycle will take downtime before any significant price collapse.  It is also likely that new packaging mills in Vietnam will come online in 2010 to boost demand by an additional 1 million tonnes of bulk grades, which balances out supply a little more evenly between China, Indonesia, Thailand and Vietnam.
Bulk packaging grades are expected to be the most volatile being dominated by Chinese buyers who have excess finished product inventories, followed by other South East Asian destinations who ultimately are influenced by economic conditions in Europe, UK and USA, and who are all bordering on recession.
Pulp substitutes will not escape, but at least these have been more stable since 1999 through until early 2008, anticipated to level off around 2003 levels by September ( -30% ) and remain within a narrow price range until 2010.
The weaker Australian dollar in August has at least softened ( -11% ) the impact of falling prices and higher ocean freight rates ( + 60% ). Domestic mills now have the luxury of adjusting to export parity prices for pulp substitutes grades ( - 17% ), however bulk grades will remain globally influenced from China and the need for Amcor to rebuild lost supply contracts to the Chinese traders and to Visy leading up to Botany PM9 in 2011.