David Fortin, Economist, Pulp, RISI
Dec. 17, 2012
Estimating fluff pulp supply changes net swing to papergrade capacity and conversions to other specialty fibers on an annual basis is challenging, but completing this exercise along with RISI's fluff pulp demand forecast creates a clearer picture of the market. Since 2010 there have been major capacity projects started and/or planned by Domtar, Georgia-Pacific, International Paper and Arauco, as well as Rayonier's conversion from fluff to dissolving pulp. These projects will ultimately result in an estimated capacity increase of 1 million tonnes (net Rayonier's conversion to dissolving pulp) once they are completed. That represents an increase of approximately 20% in fluff pulp capacity. Include an additional project being considered in Latin America a bit further out, and taken at face value, this would point to a major market imbalance with capacity well outpacing demand. However, this is NOT the case after accounting for the closure of smaller mills in the southern hemisphere in the past few years, swing capabilities between papergrade and fluff pulp, the timing of the projects and steady demand growth.
Many of the fluff pulp mills in the US South have the capability to swing to papergrade production depending on the tightness in the fluff pulp market. Our fluff pulp capacity forecast is done at the mill level and assumes swing between papergrade and fluff pulp when and where appropriate. We estimate that capacity will increase on a net basis by an annual average of 220,000 tonnes during this period. At the same time demand is expected to grow by an average of 210,000 tonnes per year, keeping the demand/capacity ratio relatively stable.
The smaller size of the fluff pulp market, the specialized production (less commoditized than papergrade pulp), and the concentration of ownership work together to create a more stable market overall. Capacity additions, as a result, tend to be more measured in their implementation. This is due in part to the factors listed previously along with the time it takes to get production qualified by customers and the capability to swing to papergrade production while fluff pulp production ramps up. With fluff pulp demand expected to continue to grow 3.5-4.5% annually in the medium term, it would not be surprising if there were additional capacity expansion projects announced beyond 2014. Papergrade pulp mills, both integrated and market, located in the US South softwood fiber basket will likely make an effort to convert underperforming paper and pulp assets in the face of declining domestic paper demand.
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David Fortin, Economist, Pulp, is the author of the Outlook for World Fluff Pulp Market and assists with the World Pulp Monthly and World Pulp and Recovered Paper Forecast. He works out of RISI's Bedford office and can be reached by email: firstname.lastname@example.org.