China Will Get New Pulp From Uruguay

Implications: Market Pulp is a global commodity  produced in 19 countries totalling 58 million mt this year.  Will a new 1.1 million mt/mill upset the supply/demand balance and cause a downturn in pricing?   Eucalyptus (referred to as BEKP) has a new price of US$755/admt as of Sept.1st. which is $20/admt higher than the highest competitive hardwood (acacia, aspen, birch, high maple).  Some industry observers fear that this increased capacity will cause buyers to become hard nosed about paying the higher list prices recently announced.  This could start a downward spiral causing some producers to panic and immediately begin offering discounts. On the positive side is the robust health of the global paper business - especially Uncoated Free Sheet in China, India and other high population countries where new high-speed papermachines are consuming pulp (75-80% of this paper's makeup is hardwood) at very high levels and show no signs of slowing down.  And, new tissue machines will be consuming hardwood.

Analysis: When Metsa-Botnia announced plans to build this US$1.3 billion mill in Uruguay they actually were taking minimal risk since arrangements had already been made with fellow Scandanavian paper producers, Stora-Enso and UPM Kymmene to ship all their new BEKP to their mills in China.   Each company has a multi-mill operation in China with world class high speed paper machines employing the latest technology.  Just one of these new machines is capable of consuming over 125,000mt of hardwood pulp/year.  Therefore, just 4-5 papermachines can consume the total output of the new Uruguay mill.  With all the output going to China, buyers in all the other countries will never be offered any of this new capacity.  Therefore there will no impact on the supply/demand balance.
China's consumption of paper and paper products has grown from 22 kg/person in 2002 to the current 50-52 kg/person and is projected to grow to 70 kg/person by 2010.  It is for this reason that all the papermills in China already have laid plans to expand each of their mills by l and 2 machines each.  By 2010 the PRC estimates their country will require 81-84 million mt of paper making fiber.
Another growth area in China is in tissue and towelling.  APP in July announced the purchase of 40 high tech tissue and towelling machines. 24 to be installed on Hainan Island (which will effectively consume all the pulp from their 3300mt/day pulp mill) and 16 to be installed at APP's four major mainland paper mills.  
Not only is there tremendous growth in personal consumption of paper and tissue but there is a corresponding growth in papermaking capacity.  This bodes extremely well for every pulp producer around the world!
The government in Uruguay has announced its intentions to set aside 25 million hectares in the western part of their country for eucalyptus plantations.  This is quite sufficient to supply the needed chips for at lease several more pulp mills and would indicate the willingness of the government to make Uruguay a major pulp producer to the world.