Market glut pushes down pulp prices

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.