The Paperitalo publication-wide theme, chosen by our publisher and editor, Steve Roush, for the month of April 2013, is “Fiber Supply.” This might be more appropriate on April 1, otherwise known as “April Fools’ Day,” but we have to work with what we have.
In the early part of my career, fiber supply predictability was fairly certain. My employer, Procter & Gamble, was building new pulp mills in Grand Prairie, Alberta, and, just a bit later, Oglethorpe, Georgia, USA. At about the same time, my future employer, Jaakko Pöyry Oy, was designing and building the first phase of Aracruz on the southeastern Brazilian coast.
Little did I (nor, perhaps, anyone else) see the turmoil that was coming. The last virgin fiber pulp mill in the United States was built around 1990. Permitting hurdles and fiber growing efficiency have stopped the construction of new kraft mills in the US. Southern hemisphere Eucalyptus pulp has exploded (more in a minute). China has awakened, and proven to have a voracious appetite, for all things cellulose, virgin and recycled. Recycled fiber has grown from a backwater expertise known only to cylinder machine operators to a respectable mainstream topic in polite society.
The upshot of all of this is a near complete lack of clarity of fiber prices, supply and demand. At the moment, Brazilians have overbuilt capacity (once again) and are facing a dicey short term future. Recycled fiber prices, particularly in OCC, are stable but rising. However, no one really knows much about future market conditions. In fact, we could probably do a better job of guessing the price of oil or corn or soybeans a year out than we can cellulose fiber in all its glorious forms.
Yet, we soldier on. In an era when weather forecasting has gone from being a guess to almost accurate, we can’t tell you what we’ll be paying for raw materials in sixty days.
I’ve been saying it for a long time, but no one seems to want to listen—what the industry needs is an open call commodities trading platform, rigorous and large enough to which to pay attention. Yes, there are some small markets, particularly for virgin fiber, and their operators would argue they are big enough. Don’t think so.
However, the real place where we need transparency is in recycled markets. This business still harkens to its back alley roots dating to World War II. There are “list prices” which only a fool would buy or sell at. Quantities in motion and available for purchasing or selling are vague. The quality standards are lacking in clarity and enforcement. It is appalling to me that when a company has assets worth hundreds of millions of dollars, when talking about fiber supply costs, managers shrug their shoulders.
We can do better than this, industry. Need a real leader here.