Further depreciation in the Australian dollar could lead to a ‘supply-side shock’ in the publishing paper market and threaten the future of some paper mills, according to industry experts.
Further depreciation in the Australian dollar could lead to a ‘supply-side shock’ in the publishing paper market and threaten the future of some paper mills, according to industry experts.
“Operating on already super-fine margins, overseas mills, especially those in Korea, have proven themselves to be resilient over the period since mid-2013, when the Australia dollar commenced its depreciation,” said the latest edition of Pulp & Paper industry bible IndustryEdge (IE). “However, their capacity to sustain the trade, in the face of the declining Australian dollar, has been fully extended.
“IndustryEdge’s considered view, based on all of the available data and discussions in recent weeks (we have clients across the supply chain, both domestic and international) is that prices are simply unsustainable.”
Local paper merchants Spicers, BJ Ball and KW Doggett say they’re being forced to raise their prices in October by up to 11% in response to the strength of the US dollar against the AUD.
“Some merchants have been forced to switch some or all of their supply to European paper mills that are less exposed to the USD/AUD exchange rate and others switched to alternative Asian suppliers, especially those with deep pockets,” said IE.
“Efforts to increase Woodfree grade prices, both coated and uncoated, are underway…and are observably urgent. Analysis shows that on average, importers and merchants of these grades have received price increases of just 3.5% over the last year, while the depreciation of the Australian dollar against the US dollar has been 20.5%. The gap is being funded by a combination of paper mills receiving lower prices and by merchants funding their buyers.”
IndustryEdge warned that further depreciation of the Australian dollar means the potential for a “supply-side shock” is more likely than not and said that major paper producers had "no option" but to increase prices.
“Leadership on prices needs to come from those major Asian producers whose volumes appear to have increased over 2015, both for coated and uncoated woodfree grades,” said IE.
A leading industry analyst agrees that current prices are clearly not sustainable. “There are suppliers who are losing money and they can’t keep on losing money. It’s such a big dump in prices. If they don’t increase their prices, some mills will not be able to continue to supply and the risk is that someone significant will fall over and there will be so few suppliers that the market will provide no competition at all. If you reduce the pool of potential suppliers, there will be no counterweight to parties with the dominant volumes.”