Dollar Weakness Helps Exporters
11-09-2008
The strengthening of the US dollar in September which coincided with both interest rate and Australian currency corrections (totalling eighteen points) is helping offset the increases in ocean freight.  Erosion in waste paper prices has not yet bottomed, and may not, until February 2009.
 
No doubt the domestic manufacturers will need to adjust prices down, in line with export parity, at least by $30 - $40 for pulp substitutes, and even higher for non contracted bulk grades, especially OCC which has weakened thirty percent since August.
 
The larger Chinese mills have high inventories with Nine Dragons alone, reporting 750.000 tonnes. Culturally, Asian mills do not like to take downtime to correct production for supply and demand, which only prolongs their recession when buyers know that the stock is there to bid down when they need it.
 
A case in point is the decision by IP to indefinitely close their 430,000 tonne Valliant containerboard mill in Oklahoma, which is a clear signal that the largest paper group in the world are forecasting tougher times ahead.
 
Currencies are difficult to predict, with often the only safe direction being opposite to what the gurus predict.  Therefore, a US dollar parity was almost a predictable outcome to head south.  One encouraging forecast is for the Australian dollar to be at 65 cents to the US dollar by 2010.  This is also an extreme view, considering the lack of inflation in America, which would consequently increase their low interest rates and revalue the US dollar against other currencies.