Domestic paper manufacturers are reporting a hike in global pulp prices on anticipation of huge demand from Japan, where production has been hit by the tsunami last week.

Estimates of damage in Japan due to the tsunami that followed an earthquake vary. However, with a number of mills located in the prefectures most affected by the twin disasters, a few million tonnes of production capacity is out of commission.

Raw material stocks, including pulp and wood chips, have been damaged. Global suppliers are gearing up as Japan is expected to replenish this stock.

Brazilian hardwoodpulp quoting higher

Reliable industry sources here say that Brazilian hardwood pulp prices are quoting about $50 a tonne higher. This puts pulp prices at about $750 a tonne. This hike comes close on the heels of a hike in prices a week ago.

Printing and writing paper demand in Japan, one of the largest paper consumers globally, is pegged close to about 10 million tonnes a year. As Japan replenishes its stocks it would put a pressure on pulp supplies, say importers and manufacturers. China, too, is expected to conserve stocks which would mean significant raw material constraint. This will drive further increases in paper prices.

Over the last three years, there have been significant expansions by leading paper manufacturers. The most recent was by Tamil Nadu Newsprint and Papers which added about 1.55 lakh tonnes of annual production capacity, West Coast Paper Mills about 1.5 lakh tonnes and APPM 70,000 tonnes.

Prior to that BILT, ITC and Abhishek Industries added significant capacities. However, most of these mills, except BILT, are relatively insulated from international pulp price movements and could benefit. BILT is among the largest importers of pulp and could be impacted by the price shift.

Prices to go up in April

In the few weeks prior to the disaster in Japan, manufacturers were contemplating an increase in paper prices to offset rising costs of raw material and fuel including wood, coal and imported chemicals.

In April, prices are set to increase by about Rs 1,000-1,500 a tonne. Printing and writing paper costs now range around Rs 52,000.

Over the last few days, paper importers had mentioned that Japanese manufacturers had declared ‘force majeure' on commitments, particularly supply of coated paper and other high value products. But they were uncertain on possibilities of a larger impact, as the integrated mills in Japan primarily cater to their domestic markets.

A senior executive who recently visited Japan said with a per capita paper consumption of about 240 kg, the Government has placed top priority on ensuring domestic supplies.

Manufacturers see a parallel with that of the earthquake in Chile in March 2010, when nearly four million tonnes of pulp production capacity had been hit.

Just a couple of months ago they faced a glut, but the disaster that threatened raw material supply resulted in a spurt in demand in anticipation of a price increase. Much a similar situation prevails as markets anticipate further increase in prices, which is aided by the general economic recovery.

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