“Blame it on bad luck, we are told by people on the side of cardboard producers, because the current situation is the result of a series of events which unfortunately occurred at the same time.”
It began with a paper industry in a specially bad shape in 2005 due to chronic overcapacity and insufficient price levels to allow minimum profitability (note that a brand new paper machine costs a mere €500 million and that a "simple" recovery furnace will cost €240 million!).
Thus European paper makers decided to reduce their production capacity. A drastic reduction in fact. Within three years, from 2007 to 2010, it is more than 460,000 tons of theoretical cardboard production capacity that will have disappeared! Incredible considering that the total production was around 2.5 million tons! A lack in cardboard of nearly 20%!
From the Chilean earthquake to the Finnish stevedores’ strike!
In 2008, comes the financial crisis! Up to a point, justifying cuts in production capacity because of collapsing orders due to massive de-stocking. The same year Strömsdal reduces production capacity by 70,000 tons and Stora ignores 225,OOO tons. And it goes on in 2010 with Iggesund and its plant in Workington (- 70,000 tons) and the Mayr-Melnhof Group which in turn discards 30,000 tons.
But that’s not the end of it! Other upcoming events are also going to increase the phenomenon. Like the earthquake in Chile which significantly impacted global pulp supply (Chile accounting for nearly a quarter of world production). But there is also the Finnish stevedores’ strike which lasted for two weeks followed by the strike of Swedish paper mills’ workforce ... Last but not the least it is the transfer of part of the demand from recycled paper made board to virgin pulp made board, due to a controversy over the likely ink migration, resulting in large orders of Groups specialized in consumer products such as Nestle... Not to mention a particularly harsh 2009/2010 winter in Northern Europe which hampered forests exploitation and logistics in the North Sea.
“We were spared nothing, papermakers were saying ironically. The only thing missing would probably be a plane crashing on one of our mills...the works!”
A tense future!
As for the immediate future, it is actually more than tense!
In one year, prices per ton have jumped by more than 20% to 30% depending on types and ... it is probably not finished yet. The shortage situation is going to remain for a while considering very strong remaining demand and massive restocking. On the side of future possible increases in production capacity, they are not that many solution at hand. M-Real has even so announced 80,000 extra tonnes in the second half of 2011. But delivery times are not going to just disappear. Stora indicated that improvements on existing machines would give a little more visibility without saying much more. As for Iggesund the Swedish paper maker announced that it will manage to gradually supply the market with 20,000 extra tons... within the next two years! (When compared to the 70,000 tons which disappeared!). Tough, very tough...!
