Market glut pushes down pulp prices

JAKARTA (JP): The Indonesian Pulp and Paper Producers Association (APKI) said on Tuesday that a market glut had driven international pulp prices down to as low as US$350 per metric ton, paling in comparison to the $550 demanded only six months ago.

"Given the market glut, with an excess supply of 2 million tons, and the slow down in the American and Japanese economies, the pulp market is likely to remain very weak this year," Mansur, chairman of the association, added in a statement.

Mansur said that the sudden and harsher than expected cooling off of the U.S.economy, the world's largest paper consumer, which started last November, had slashed demand for paper and, as a consequence, demand for its basic material, pulp, had also slumped.

"This depressed market is certainly affecting the cash flow of Indonesian pulp producers (notably the Sinar Mas and Riau Complex)," he said.

Moreover, Mansur said, Indonesian pulp producers have a weak bargaining position because, with a combined annual production capacity of only 5 million tons, they only capture about 2 percent of the world market.

"It is no wonder that the position of Indonesian pulp exporters is mostly as the price taker," he added.

Worse still, according to Mansur, the domestic market has virtually collapsed since the 1997 economic crisis, cutting down the per capita paper consumption from 17 kilograms, already among the lowest in the world, to as little as 8 kg now.

The association is, however, confident that the downcycle will not last for many years.

Mansur said that, as the supply glut would most likely impose market discipline and keep capacity expansion under control, the pulp industry could expect to emerge from this depressed condition within the next two to three years at the most.

Indonesia's pulp industry, he argued, also has a comparative advantage over its competitors in Europe and the U.S., who produce softwood pulp, because industrial timber estates here can be harvested within seven to eight years, compared to 30 years in the case of softwood trees.