Are We Bouncing Along the Top?

At this time of year confusion reigns with Chinese import licence renewals, harsh European winter, and the uncertain but steady pulp prices. The forecast of a no frills Christmas does not lend itself to much joy, but at the same time, it appears to be a fairly balanced supply and demand scenario, with pricing if anything bouncing along the top.

The signs for Q1, 2011 do not look much different, with a possible buying surge early January prior to the Chinese New Year, a softening late January and early February, before coming back to normal for March. Plus or minus $20 which is also following pulp trends.

Unfortunately, the outlook for the remainder of 2011 could be good or bad news, depending if you are a paper distributor, printer, or in recovered paper. With the exception of subsidised Chinese government mills, it is doubtful if many other mills can make enough money to reinvest into a shrinking fine paper market. The fine papers supply chain remains too cluttered and only those with deep pockets and vision can survive further market shrinkage, which in Australia is still yet to hit even harder.

Recovered paper companies will be no different.  As mills themselves are forced to take downtime, the Asian markets will show more volatility, which will be reflected in larger price swings. Mills are unlikely to want to enter into long term contracts, even though this provides security of supply. Many detest the word tender, as it means commitment, whilst suppliers will wish to sell forward, simply for efficiency. 2011 is likely to be an uncomfortable market to trade in.

The pricing graphs below show some stability following the recovery from 2008, with prices very reasonable, despite the weak US dollar. Ocean freight rates out of Australia have become more negotiable during December, with good old waste paper always there to fill up larger vessels coming into service when grain is short.