Global jump in pulp prices to put 144 island employees back to work
Resurgent Chinese demand propels prices as world inventory declines
By Gordon Hamilton, Vancouver Sun
August 26, 2009
Surging prices have prompted two Vancouver Island pulp mills to restart
idled operations, bringing 144 laid-off employees back to work.
The reopening of shuttered island operations marks a dramatic turnaround in pulp markets that caught buyers by surprise. Most pulp producers have announced a $40 US a tonne price increase for September.
Harmac Pacific president Levi Sampson said a second pulp line at the Nanaimo mill is to start up in mid-September, a move that will employ 40 workers.
And Catalyst Paper said one of two pulp lines it shut down last February at its Crofton site will be back up in early October, employing 104 workers who were on layoff.
Both companies cited higher prices for pulp as the reason they are recalling workers.
"Everyone has been contacted who was on the outside looking in," Sampson said of the decision to add a second pulp line."A lot of guys have been waiting a long time for that phone call."
Harmac is partly owned by a core group of employees who bought the mill from bankrupt Pope & Talbot one year ago. The mill, which employed 535 people at its prime, shut down in May 2008 in a messy court-ordered receivership proceeding.
Sampson said resurgent Chinese demand is behind the decision to start making more pulp. Harmac sells about 50 per cent of its pulp in Asian markets.
"We have seen price increases steadily for many months now and we are looking at selling prices into China at $650 a tonne," he said. "That's well above our cost."
Six months ago, the price was around $500 a tonne, he said.
Catalyst cited stronger demand as well as higher prices.
However, many coastal sawmills that provide chips to the pulp industry remain curtailed, making fibre supply tight for the pulp sector.
"Fibre availability isn't infinite but our intention is to run production of that line for as long as we have markets and fibre availability to support it," said Catalyst vice-president Lyn Brown.
"Pulp markets have been a little bit stronger from both a price and demand standpoint and it gives us an opportunity to take advantage of that. And for 104 people who get to go back to work, I am sure it is good news." Paul Quinn, research analyst at RBC Capital Markets, said global pulp inventory is down significantly, leading to the price recovery. But he is not convinced that it is a sustainable recovery. The market is tight but the question is: How long will it remain tight?
"It's a shaky recovery," he said.
First, he said, the recovery appears to be only in Asian markets. North American and European markets remain sluggish. Further, Chinese demand is up 64 per cent, which is not sustainable. Chinese are buying now because their inventory levels dropped too low and the $586 billion Chinese stimulus package gave them the ability to get letters of credit to buy on the open market.
"They are doing this in a lot of commodities. It's not just pulp. Coking coal, base metals and copper are ones where they have big inventory positions."
"When China eventually comes off its rebuild, prices could slide," he said.