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Pulp: Recovery firms up

S. Vaidya Nathan

THE prices of wood pulp, which had started off 1999 with a feeble recovery, are now on firm ground. In the first six months of 2000, the prices of soft wood pulp have risen by close to 19 per cent. The important aspect is that producers have been able to effect price increases which are getting absorbed. Even a year ago, this was not the case though the uptrend had started.

There was some resistance to the price hikes effected in mid-1999 and producers had to make a retreat. But since then, strong demand and low inventories appear to have driven prices and improved producer pricing power. In the last 15 months, five price h ikes have been effected and the most recent one was a $40 per tonne hike in April 2000 taking the prices to around $680 per tonne.

The phase of price recovery in pulp is important for the paper and paperboards industry. Trends in pulp prices tend to precede similar trends in paper and this has been the case so far in the last one year. The prices of paper of various grades and varie ties have seen increases at both the domestic and the global levels in this period. Domestic producers have effected a hike of Rs. 500 to Rs. 1,000 per tonne in the last month and the markets appear to have absorbed them. Though paper traders have indica ted preference for just two hikes a year, paper manufacturers have turned this down. The strong trends appear set to continue.

The last 18 months is probably the period since the boom of 1995 when the price trends have shown a fairly sustained uptrend despite some resistance in mid-1999.

The sustained uptrend suggests that the recovery is more than a case of inventory build-up. Better demand levels seem to be behind the price trends. This is the only phase since 1995 when the price hikes have not proved to be false starts. The Bank of M ontreal has in its Commodity Report for May 1999 noted that ``With Norscan producer inventories at their lowest level since March 1995 -- and well below the point usually giving producers the upper hand in pricing -- pressure will persist for furthe r increases later this year.

``Market fundamentals are the best they have been since 1995. Demand from North America and Europe is robust. Asian markets are recovering and capacity additions worldwide will be limited in the coming year''. If the rising prices do not lead to addition al capacities coming on stream, pulp and paper prices may continue to show firm trends.

For players in the paper industry such as Ballarpur Industries, ITC Bhadrachalam, TNPL among others, the improvement in prices may be enough to show better profitability in the first half of 2000-2001.