There is a huge shortage of paper pulp in the world market due to the earthquake in Chile, which has shut down its pulp operations. Chile accounts for 8% of the world's market pulp output.

Further, there is no guarantee when operations will normalise for movement of logs to the pulp plants. Shipping out of the ports is an issue.

To add to this, several Finnish mills have closed due to the country’s longest dock strike in two decades. Fortunately, the strike has been called off from 23 March onwards. The impact of delay will be known soon.

The transaction price for northern bleached softwood kraft pulp in Europe has increased from $624 per ton in January to $875 per ton on 9 March 2010.

The dramatic increase in pulp prices is due to global demand for market pulp exceeding supply. Global paper grade market pulp producer inventories fell from an average of 39 days for the period January to June 2009 to an average of 26 days for the period July to December 2009, according to industry sources like Pulp and Paper Products Council.

Pulp mills around the world are experiencing problems sourcing wood, due to unusually cold and wet weather in most parts of the northern hemisphere. This has been accentuated by logistical bottlenecks and shipping delays.

Historic high price

The US government has withdrawn a subsidy of $125-150 per ton for the treatment of black liquor generated during pulp manufacturing effective from 1 January, which has made pulp costlier at least by $150 in the last two months. As a result, mills in the US, the largest manufacturers and consumers of kraft paper, are using more waste paper causing shortages in the export market and a resultant rise in prices. Again, ocean freight has gone up due to shipping bottlenecks. As a consequence, pulp prices have risen sharply to $750 per ton against $360 per ton a year ago. The pulp prices will increase by $1,000 a metric ton, to take it above the 1995 (historic) prices.

Many of the international paper suppliers seem to have announced paper price hikes. As with every commodity, there will be an added element called increased demand from China that can drive prices further up.

Paper in India

Currently, the pre-season demand from book printers and notebook manufacturers is favourable, as they require paper supplies of at least three months to cater to the demand for the next academic year, beginning June.

About raw material, a senior executive of one of the largest domestic paper manufacturing companies said that the prices of pulp and waste paper, the two main raw materials, have doubled in the last three months.

Indian paper mills are using waste paper as raw material for manufacture of kraft paper used by the packaging industry. Waste paper is supplied by scrap traders to paper mills, and due to the unavailability of required quantity, it is being imported to meet demand.

Ingeniously available waste paper is not sufficient to cater to the needs of mills and, hence, almost 50 per cent of the waste paper requirement is met through imports from the US, Europe and the Gulf countries.

Future look grim

Today, India is the fastest growing market. The Indian paper industry ranks number fifteen globally in terms of size but accounts for 2% of the world’s production. This shall increase to 3% by 2015. Largely thanks to $3-bn worth of investments by Ballarpur, ITC and JK Papers.

Will printers be able to pass on a part of raw material price rise to consumers? Already a popular boutique press in Delhi is shutting down it’s operations. Likewise a well-known press in Mumbai has announced a distress sales of all it’s equipment. The point is, many small and medium units are encountering problems due to manpower shortage and bad debts. The paper price hike and paper shortage may cripple them, further. Is a shake-out imminent?

UPDATE: Paper prices

• The price of 16 BF (burst factor) paper is quoted at Rs 18,000-19,000 per ton from Rs 16,000 per ton a month ago, up 19 per cent. Similarly, 20 BF paper is quoted at Rs 20,500-21,000 per ton against Rs 16,500-17,000 per ton a month ago, up 24 per cent.
  
• The demand for waste paper has surged. Waste paper prices have gone up by 13 per cent, or $35, to $300-305 per ton.
  
• Pulp price hikes are expected to cost more than $ 1000 per ton, which is $400 ton higher than the January 2009 rate
  
• Both Ballarpur and ITC have hiked prices.
  
• There is a temporary unavailability of UPM due to the strike in Finland. The UPM brand is deployed for PrintWeek India
  
• India consumes 6000 tons of speciality paper, whose prices have risen