Recent reports by the Wood Resource Quarterly confirm that global demand for pulp has declined and as a result pulp prices fell during the second half of 2011. The upshot is that prices for wood fibre, the highest cost element when producing pulp, were down worldwide.
Overall world pulp prices fell by about 20 per cent from July to December last year. With demand weak and lower product prices this inevitably led to pulp company profit margins being squeezed with companies trying to reduce costs for wood fibre.
The long-term trend in the pulp industry has been one of wood costs rising as a percentage of total production costs. In the third quarter of 2011, this share had reached 63.5 per cent on a worldwide basis, up from only 53 per cent in 2005. However, this share can vary substantially, from a current low of 52 per cent in eastern Canada to as high as 73 per cent in China. Therefore, the importance of tracking wood fibre prices over time has become critical in order to compare competitiveness across different regions worldwide.
The US dollar continued to strengthen against the local currencies of all of the countries covered by Wood Resource Quarterly (WRQ) except Japan during the fourth quarter of 2011. When this is factored in together with the downward price pressure on pulplog and wood chips in local currencies it resulted in a decline of both global wood fibre indices. The Softwood Wood Fibre Price Index fell for the second straight quarter to US$105.30 per oven-dry tons (odmt) in the last quarter of 2011. This resulted in a 3.3 per cent decline from the previous quarter, but was still slightly up at 1.6 per cent against the same period in 2010. The biggest price drops were reported in western Canada, Brazil, Spain, Germany and Finland.
The Hardwood Wood Fibre Price Index fell by 3.6 per cent against the third quarter of 2011 to stand at US$113.69/odmt. Again, despite this drop, it was still 5 per cent higher when compared to the same period in 2010. The worst third and fourth quarter price reductions occurred in Spain, Finland, Brazil and Chile.
Analysts continue to predict that wood fibre costs are likely to continue this downward trend in a number of markets during the first quarter of this year, particularly in the Nordic countries, western Canada and the US. This is a direct result of pulp prices continuing to be substantially below the record-high levels recorded last summer.
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