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MARKET ANALYSIS

British Wood Pulp Association / Hawkins Wright Symposium 2009

The annual BWPA / Hawkins Wright Symposium was held at Savoy Place, London, home of the Institution of Engineering and Technology, on November 12. Five industry experts: Stig Andersen (Nordea Bank); Ulf Edman (Södra Cell); Andrew Cassey, who stood in for Avrim Lazar (Forest Products Association of Canada); Joe Nemeth (Canfor Pulp); and Oliver Lansdell (Hawkins Wright); gave their views on how to survive the current economic conditions, how Canada is adapting its industry given recent poor performance, and the forecast for market pulp for the coming year.

This report outlines the various themes discussed by the lecturers and the audience, which together summarise the state of the current pulp market, future options for the industry, and predicts trends in the coming year.

Background
The US pulp and paper industry has been in inexorable decline during the whole of this decade. The European industry has fared better over the period, partly because it is less homogeneous and has a more varied selection of players, none of which has overall market control. However, in recent years it has also shown a decline, albeit less steep, and it is estimated Western Europe has lost about 9M tonnes of paper and board capacity in the last two years alone.

Both US and Western European markets are moving from a period of growth to one of long term decline as regards paper consumption, a major cause being the rise of the internet taking advertising revenue away from printed media. In addition, it is felt exports out of Europe will become harder, as the rest of the world’s industry increases in size.

Finally, whilst pulpwood prices have remained relatively stable recently, biomass prices have been increasing, such that competition will soon be inevitable between the two markets.

Adaptation
Given the background circumstances described above, the participants were asked to outline future strategies the Western paper industry could adopt to survive and prosper in the changed economic environment.

First, and most drastic, was the suggestion that current players should simply leave the industry and find other business. An obvious example to cite is Nokia, who left the forestry sector to concentrate upon consumer electronics many years ago; less obvious is the example of Haindl Papier, who sold at the height of the market. Unfortunately, current players are unlikely to find a buyer willing to pay high prices for their business in the prevailing economic climate, so selling out is presently not an option.

Second, go niche or move higher up the value chain. Examples include Billerud and Arctic who both progressed to production of speciality papers, and SCA who have moved more into conversion in their tissue and packaging businesses.

Third, stay in the current sectors but restructure and learn supply control, adjusting capacity to demand. It was claimed this had been particularly successful in North America, the main example being the reduced capacity in newsprint between 2002-2007 having led to increased prices. However, the European market is more fragmented than North America, so for this to be effective major consolidation would have to occur, which would require a change in the way regulating authorities view such moves. Also, this can be a very costly way to proceed; for example, AbitibiBowater are a major force in the US, holding as they do over 40% of the newsprint market due to mergers and take-overs, but the cost of achieving this dominance has led to their recent entry into Chapter 11 bankruptcy.

Two final strategies were proposed that are both variations upon a theme. They involve the formation of ‘Biocombines’ – integrated manufacturing facilities where pulp, paper and board, bio-energy, bio-chemicals, and wood products, are all made on one site. One version is based upon the use of Greenfield sites; this is the preferred long term option since the facilities can be custom built, and it is anticipated such operations will start first in high growth areas such as Latin America, Africa and Eastern Europe. The other version uses Brownfield sites, where existing pulp mills are expanded and adapted to encompass the other operations; already examples of this type are occurring in the Nordic region.

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