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Pulp Price Surges on Chilean Quake, Finnish Strike (Update2)

http://www.bloomberg.com/apps/news?pid=20601109&sid=aN34UgtVDxAM

March 11 (Bloomberg) -- Chile’s earthquake and a Finnish port strike may propel pulp prices to a record, hastening a tightening of inventories after papermakers cut output.

The price of European benchmark pulp rose to $875.62 a ton this week, the biggest seven-day increase in almost six years, according to Helsinki-based FOEX Indexes Ltd. Pulp in Europe could top $1,000 a ton, higher than 1995’s peak, within a few months, said Kurt Schaefer, who analyses the fiber industry at Bedford, Massachusetts-based paper researcher RISI.

Mills have ground to a standstill in Chile and Finland, which together account for 12 percent of world pulp sales. The spiraling pulp price, which in turn boosts paper prices, marks a turn in the market for papermakers including Stora Enso Oyj of Finland and Norske Skog ASA of Norway, which have both spent years cutting output to restore depressed paper and pulp prices.

“The pulp market has never seen a disruption this sudden and this large,” Schaefer said. “The market is so tight at this point that every disruption is magnified 10-fold.”

The stoppages come after average pulp stocks fell to 20 days, from 50 days at the height of the financial crisis, as papermakers lowered inventories, Schaefer said. The 20-year average is 32.6 days.

Strongest in 50 Years

Last month’s 8.8 magnitude earthquake in Chile, the country’s strongest in 50 years, killed hundreds, destroyed thousands of homes and hammered pulp and timber producers in the country’s central southern region, close to the epicenter. Pulpmakers affected include Empresas Copec SA’s Celulosa Arauco y Constitucion SA unit and Empresas CMPC SA, the two largest.

Stora Enso fell as much as 1.1 percent to 4.93 euros in Helsinki trading today. Norske Skog gained 1.5 percent in Oslo. CMPC and Copec have lost 2.1 percent and 5 percent since the earthquake, while Brazil’s Fibria Celulose SA is up 8.1 percent

Only one of 35 pulp plants and sawmills owned by Celulosa Arauco is currently operating, spokesman Andres Moran said. Part of the Mutrun sawmill was swept out to sea and pools of water remain in log stores, he said. A third tidal wave also flooded an area where it stores timber in southern Chile.

“We are still in a first stage of clearing away the debris,” Moran said. “Following that we will begin an evaluation process of determining in what condition the machinery is.” The company said it probably won’t produce in March.

Finnish Strike

Norske Skog, Norway’s biggest newsprint supplier, said its Concepcion paper mill is closed and a force majeure claim is in place over failed supplies. The closure will last for “some time,” said Tom Bratlie, the Lysaker-based company’s spokesman.

In Finland, Stora Enso and UPM-Kymmene Oyj, Europe’s two largest papermakers, have closed mills and cut production as a strike by port workers that started March 4 has cut off 90 percent of the Nordic nation’s exports. The Helsinki-based companies have said it’s only a matter of days before they halt production fully as they run out of space to store inventory.

Stevedores and port operators are set to resume talks tomorrow with a government mediator after failing to reach agreement today, the Transport Workers’ Union said.

Effects on Paper

[b]“It’s a perfect storm,” Cesar Perez, a managing director at brokerage Celfin Capital SA in Santiago, said in a telephone interview. “There’s not much availability of fiber in other parts of the northern hemisphere, so that’s going to push prices even higher in the following months,” he said.

CMPC, owned by Chile’s billionaire Matte family, said March 2 it halted production at its plants because of a lack of power and water supply. The company owns three pulp plants in Chile and Argentina, where it also makes paper products.

Pulp is the main raw-material for paper, and a shortage in supply will have knock-on effects in that market too, said Timo Jaakkola, a Helsinki-based analyst with Oehman.

“Higher pulp prices will translate to higher paper prices when the paper market balance is tight enough,” Jaakkola said. “The pulp shortage will likely send pulp prices quite a bit higher for the next few months.”

M-real Oyj raised paper prices twice this month, citing the pulp shortage and cold weather in northern Europe. Finland’s third-largest papermaker announced price increases of as much as 15 percent this month, to take effect in April.

Biggest Price Rise

“We see these increases in paper prices as very important,” M-real Chief Executive Officer Mikko Helander said in an interview. “There’s going to be a shortage of pulp, and prices will continue to increase.”

One Chinese paper producer introduced Asia’s biggest price increase ever this week, raising prices by $150 to $1,050 a ton, said Sandy Lu, a Shanghai-based paper economist at RISI. It’s unclear whether the price hike will stick, she said. Lu didn’t identify the Chinese producer.

Chile’s outages “are tightening the situation and supporting a rising price trend,” Ilkka Haemaelae, chief executive officer of Metsae-Botnia Oy, a Finnish pulp producer, said in a telephone interview. “Raw materials have no other drivers than the balance of supply and demand.”

To contact the reporters on this story: Chad Thomas in Helsinki at [e-mail] or Matt Craze in Santiago at [e-mail].