Q2 Uncertainty

Whilst recovered paper prices have weakened around 5% so far during March, price uncertainty remains for the next quarter for a number of reasons, even without natural disasters. This is likely to be the first negative quarter since Q1 2009, especially as it also contains the May Golden holiday period in China.

Shipping freight rate increases are already being felt from Australia which have been a negative $10 per tonne in March. Carriers have the comfort of the start of both the grain and cotton season, and are likely in Australia to duplicate what they have inflicted in New Zealand during the past eighteen months. From NZD16-20 or a 25% increase is hurting, in addition to what many shippers believed was an already unsustainable ocean freight level.

Low prices for prime base papers are not allowing any margin for waste price increases, in fact the opposite, as demand remains negative for printing and publication grades, especially newsprint.

The USD is under pressure to weaken further.

The extent of damage to Japanese mills is not yet fully known, nor energy supply to them. The bottom line must be less utilisation of recovered paper in Japan increasing available fibre for export.

What remains to be seen is the question whether China will enforce their environmental import regulation for radioactive materials? If they do, then China could be caught short of fibre which is doubtful, as Asian prices are softening in speculation of a surplus.

Improvement may not be felt until late August or Q4 as seasonal Christmas demand for packaging and printing is not certain.