Why Is Softwood Market Pulp In Such Short Supply?

Implications: Global demand is expected to grow by at least 3.5% in the next 12 months with very little new tonnage coming on stream to meet this demand. China's total fiber demand is expected to grow to 81-90 million mt by 2010.  This year they expect to import 7.5mmt of virgin pulp. Tissue machines are being installed in many countries and they all rely on NBSK as their reinforcement fiber. Fluff Pulp demand is growing by 4% or 225,000mt/year.

Analysis: The shortage in supply for softwood market pulp can be compared to "the perfect storm".  Consider these factors:
1. in the past five years a number of Canadian softwood mills have shut down - Prince Rupert and Squamish in BC, Prince Albert in SASK, Smooth Rock Falls in Ont. and Cascades and Quillivion in Quebec.
2. Ontario and Quebec have both reduced their a.a.c. (annual allowable cut) to 70% greatly increasing the mill's wood costs - to the point where they are now the highest in the world.
3. the slowdown in housing starts has dropped the price of dimension lumber to the point where sawmills cannot continue to operate - this has reduced the supply of chips to the point where some pulp mills have had to take downtime.
4. the rise in the Canadian dollar to 92 cents/US$ has reduced the amount of money available to the mills for any incremental increases in production (everything costs huge capital outlays).
5. several southern US mills have changed over to Fluff Pulp from papergrade SWD - IP's Riegelwood, NC, Weyerhaeuser's Port Wentworth, GA and GP's Leaf River, MS mill.
6. Chile's 2006 new capacity at the Valdivea and Nueva Aldea mills is targeted for China.  China's many new UFS papermachines are consuming huge amounts of softwood to maintain the high level of production needed to keep up with worldwide demand.
                      WHERE IS THE DEMAND?
As was mentioned above, China's paper industry has developed a voracious appetite for both eucalyptus, acacia and softwood - especially NBSK with its greater strength like Tensile.
New tissue machines are being installed in many countries - APP for example has ordered 40 new machines for China - 24 of them to go into Hainan Island alone.
Fluff Pulp goes into baby diapers, adult briefs, feminine hygiene, incontinent pads (for older people) and air laid nonwoves.  All these products are growing especially in developing nations.  It is reported that a new diaper/adult brief company starts up every week in both Latin America and the Middle East.
     Is there any end in sight for this growth in demand?  Not that anyone can see.  Consequently softwood prices will continue to escalate from their present $810/admt for NBSK to probably $850 on July lst and then another $25-40 on October lst.  This will further expand the disparity between long fiber and short fiber selling prices.