Will pulp prices fall in spite of curtailments?

Implications: The world of market pulp has enjoyed 2+ years of rising prices that saw NBSK rise to $880/admt (this summer's announced $30/admt increase didn't go through).  In spite of this company profits did not reflect this with some companies still reporting sizeable losses in the 2Q. What will happen to high cost mills if pulp prices come down $100/admt? Pulp mills have claimed to be suffering from a combination of high costs in transportation, energy, labor, chemicals and (especially) wood costs.  None of these will go down in 2008 so any reduction in selling prices will diminish any profits that had been projected.  Does this situation portend the permanent closure of any European or N.A. mills?

Analysis: NBSK is the benchmark market pulp grade and has usually been the highest priced (with the exception of Fluff Pulp).  NBSK is produced in the northern hemisphere where wood costs have soared in the past year with the shut down of many dimension lumber sawmills.  We believe this was one of the reasons Tembec saw fit to curtail their Hi-Yield Sulphite mill in Temiscaming and the softwood mill at Tarascon, France.   Many industry observers are projecting a $100/admt drop in transaction prices by the 3Q'09 which will push many mills into the red. We can envision some of these  northern mills shutting down permanently while others change company policy to move their market pulp to the company's paper mills thus taking that tonnage off the market.  China has been the engine driving the global market pulp business but even they began to reduce their purchases just before the Olympics.  They have not resumed their previous purchasing levels where they seemed to be buying all the pulp available to them.  Perhaps in a year India will have developed their paper industry to the point where the slack can be picked up.  However, in the meantime, the market pulp industry may be in for some rough times with diminished demand, buyers pushing hard for greater discounts and pulp mills having to consider curtailing production as inventories fill their warehouse.