Asian pulp supply 'remains plentiful despite troubles'

Asian pulp supply 'remains plentiful despite troubles'

SINGAPORE (Dow Jones): Asian pulp supply will remain abundant despite Asia Pulp & Paper Co.'s (APP) financial troubles, analysts said.

Some believe APP's mountain of debts may pull the brakes on APP's milling operations and lead to a drastic reduction in Indonesia's pulp exports, helping the market to recover.

"As long as they're still producing (pulp), I don't see an immediate impact on (Asian) pulp supply," said Tan Ee Lin, Standard & Poor Corp.'s pulp and paper analyst.

Singapore-based APP is one of the world's biggest pulp and paper producers. Its two pulp mills in Indonesia account for half of Indonesia's 4.6 million metric tons pulp output last year.

The abundance of cheap Indonesia pulp in the Asian market is weighing on harwood pulp prices. Prices are now just under $500/ton level, cost-and-freight, delivered to Asian markets. In November 2000, prices were around $690-$720/ton, C&F. Some said prices are expected to slump to $450/ton in March.

APP is saddled with a $10 billion debt that has to be paid within the next three years.

Last month, some of APP's suppliers reported that they were experiencing delays in payments. Two of APP's creditors, Credit Lyonnais SA and the Union de Banques Arabes & Francaises, have already filed a complaint against APP in Singapore's high court.

APP will continuously produce pulp as long as its pulp making machines are still running, pulp and paper analysts in Singapore and Jakarta said.

"It's mostly financial not operational problem," said Irwan Junus, analyst for Indosuez WI Carr Securities in Jakarta.

Despite repeated requests from Dow Jones Newswires, APP officials refused to comment on its milling operations.

Tjiwi Kimia is APP's biggest paper manufacturing company. Last year, out of the estimated 2.68 million tons of paper that APP produced, Tjiwi Kimia accounted for 1.01 million tons.

Analysts added only an upswing in the region's current paper demand can substantially reduce the big pulp supply in Asia.

"The only thing that will decrease pulp supply is an increase in paper demand," said one Singapore-based analyst.

In its global pulp and paper report released November 2000, the Salomon Smith Barney Global Research said, "the near term market pulp fundamentals are showing signs of weakness, as producer inventory levels are on the rise, demand from Asia has pulled back, and producer downtime has been lower than normal."

Tokyo-based pulp traders share the same view. They said that aside from the onslaught of cheap hardwood pulp imports from Indonesia, the high pulp inventory in China is also pushing down prices.

China is Asia's biggest pulp importer, with yearly purchase amounting to around 3 million tons.