Forest trade Pulp value growth is a significant query mark for the forest trade – the collapse in paper demand may have a significant influence on forest corporations, analyst estimates

Weight- and the collapse in demand for writing papers during the coronavirus pandemic is almost inevitably reflected in the price of pulp and, at the same time, extensively in the Finnish forest industry.

This is the assessment of Inderes, an analyst following forest industry companies Antti Viljakainen.

For example, in the main market area of ​​Finnish forest industry companies in Europe, demand for printing and writing papers decreased by about 30 percent during the coronavirus pandemic. Schools and universities closed their doors, office copiers fell silent, and kiosks were deserted in Central Europe, where newspapers have also traditionally been bought in single issues.

“It is hoped that this pace will not be continued throughout the year. However, this year will be an ugly minus, and it is difficult to expect a big plus for demand next year, ”Viljakainen says.

At the same time, the price of the raw material for paper and other forest industry products, ie pulp, froze to the low readings of the beginning of the year.

forest industry In recent years, the share of Finnish goods exports has been about one-fifth. Much of the industry is concentrated in pulp.

The most valuable product in the forest is logs, but growing trees to full length and as a raw material for the mechanical forest industry usually takes 60-80 years. Thinning as well as tree branches and canopies produce ingredients for a pulp boiler. In this way, trees can be better utilized and silviculture becomes profitable.

The forestry companies UPM and Stora Enso with a turnover of more than EUR 10 billion and the half-smaller cooperative Metsä Group produce more pulp than they use. They make paper, cardboard and toilet paper from their cooked pulp, and they sell the extra pulp to other manufacturers. The sales of this so-called market pulp have been boosted by the growth of the Chinese economy.

“Pulp has been one of the most significant performance drivers for forest companies,” says Viljakainen.

Yet a couple of years ago, there was a direct pulp boom in the forest industry. In the peak year of 2018, more than $ 1,200 per tonne was paid for long-fiber softwood pulp, but last year the price dropped to about $ 820. The change reflected a turnaround in the forest industry.

In June, the price of pulp had jumped to about $ 860 per tonne, but in the reports at the beginning of July, the readings have been falling again, Viljakainen says.

The average price of short-fiber pulp, on the other hand, has remained at around $ 680 per tonne throughout the year, Metsä Group said in its interim report published on Thursday.

“The price level is historically low,” says Viljakainen.

If printing and writing papers are not taken into account, the pandemic has even boosted demand for pulp products.

“Global demand for hygiene products has risen to unpredictable value when it comes to not using electronic viral linkers [puhaltimia] but disposable hand papers and handkerchiefs, ”says the chief economist of Metsäteollisuus ry, an industry association Maarit Lindström.

As in Finland, toilet paper was hoarded around the world at the beginning of the pandemic. It will not be consumed any more, Lindström points out, so the situation is likely to level off towards the end of the year. In contrast, in the long run, demand for hygiene products may increase as the middle class continues to grow in China and elsewhere in Asia. However, the importance of tissue papers for Finnish production plants is small, Lindström says.

paperboard Products and other packaging materials have also done business despite the pandemic situation.

In the second quarter, Stora Enso managed to replace its loss-making paper business with cardboard, while UPM managed to replace labels with packaging. However, the comparable result of both decreased by about 20 percent year-on-year.

Metsä Board, a subsidiary specializing in paperboard listed on Metsäliitto’s stock exchange, even increased its operating profit from last year.

The need for packaging materials has been increased by both e-commerce and takeaway deliveries. As with printing papers, the direction may remain more permanent even after the corona pandemic is over.

According to Lindström, the situation is putting pressure on forest waste to convert existing paper machines to produce packaging materials. This was also referred to by UPM’s CEO Jussi Pesonen in connection with the publication of the company’s interim report.

“Competition in packaging materials and specialty papers may intensify as a result of this market development,” says Lindström.

In the middle However, tissue papers, labels and cartons will not be able to make up for the demand gap caused by copy and printing papers due to the coronary turmoil – the weakening of the demand for paper is so great, Viljakainen estimates.

“Printing and writing papers have covered roughly a quarter of global pulp demand. This does not support the fact that the price of pulp will start to rise in the very near future. ”

In e-commerce deliveries, the cardboard does not have to be of particularly good quality: even the heaviest boxes made of recycled fiber are sufficient for them, Viljakainen points out.

Pulp mills, on the other hand, are large production plants that are not designed to be driven up or down quickly, Viljakainen states.

“Supply is responding slowly to shrinking demand.”

However, Finnish forest companies have all scheduled maintenance outages towards the end of the year. It has a detrimental effect on sales but also on supply.

pulp the price is difficult to predict, and fluctuations can be sharp, Viljakainen says.

This is due, for example, to stocks that the Chinese are said to fill strategically and cut purchases suddenly. In addition, the price of pulp has traditionally been sensitive to global economic cycles. They are currently being determined by a pandemic, the development of which is subject to great uncertainty during the autumn.

If pulp remains cheap, there will also be indirect pressure on the prices of the products made from it. This in turn would eat up the margins of forest companies.

Even in the tightening market situation, Finnish forest companies have good conditions for competition. For example, compared to competing North American countries, production facilities are large and newer, which reduces production costs, Viljakainen says.

“On average, the pulp business has been a pretty good business for forest companies. Their results clearly vary according to the price of pulp and exchange rates. ”

Various pulps

Softwood pulp from slow-growing northern forests is mainly long-fiber. It is used to bring stiffness, strength and good tear properties to cardboard, for example.

Instead, the fibers of fast-growing eucalyptus trees in Latin America, for example, are short. For example, short-fiber pulp brings softness to toilet paper and helps to make an accurate print on paper and board.

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