By Nick Chang, Senior News Editor, PPI Asia News, RISI
SINGAPORE,
Oct. 29, 2008 (RISI) -
The current freefall in market pulp prices in China has shown no sign of hitting the bottom. The plunge has made suppliers panic, while Chinese buyers are also nervous, wondering when prices will come out of their nosedive.
Chinese traders are in an awkward position. They are both sellers and buyers, able to make or lose a fortune from purchasing and warehousing market pulp, mainly bleached softwood kraft (BSK) pulp, which they then sell on to domestic paper and board mills.
Such traders can make good money when prices shoot up. But, like other commodities, pulp prices are cyclical. So, traders monitor price movements closely and some try to figure out a pattern in the volatile market, by analyzing market data, watching other players' moves, from experience or by simply playing on a hunch.
Most suppliers of market pulp accept payment from Chinese buyers, which include traders and end-users, in the form of 90-day letters of credit. Such a deferred payment scheme is a powerful weapon for buyers to engage in speculation.
I knew someone several years ago, who was a purchasing manager in her late 20s, working for a big Chinese trading company. She handled pulp trades, which included negotiating prices with agents and suppliers, importing and warehousing pulp and selling to customers, for her firm. While helping her company make profits, she also made her own investments in pulp.
In one deal, she managed to sell 10,000 tonnes of BSK at a profit of $100/tonne, at a time when prices were soaring.
"It's simple and straightforward. As long as you are not greedy, you can make money by buying low and selling high. Pulp prices are, after all, not as volatile as other commodities, such as oil," she said, having learned that from a close friend working at a big Chinese oil trading company.
She also told me the best targets for investment were radiata pine and Russian BSK, as they were increasingly popular in China and could be sold on quickly.
Before long, though, pulp prices peaked and started to drop off, and Chinese traders got the jitters.
Another contact, who was a pulp agent, told me that one of his trader friends was having trouble selling off his BSK stocks, built up when prices were much higher some months previously. The poor chap was so worried that he couldn't eat or sleep. In just a few weeks, he lost 20 kg.
"Not all bad news for him," my contact said, wryly, "at least he doesn't have to pay to lose weight."
I heard from the young purchasing manager again some time later. She had left her company and started her own trading firm. But her passion for pulp seemed to have faded and she had found new territory, traveling to Thailand to meet recycled containerboard producers, with a view to importing fluting and selling it to her customers in China.
At the time, however, China's top two producers of corrugating materials, Nine Dragons Paper (Holdings) and Lee & Man Paper Manufacturing, were in expansion mode. And since then, a bunch of new recycled containerboard machines have come on stream, meaning China no longer needs to import volumes from Thailand. I have not heard from her since then.
I wonder if more such tales will emerge from the latest pulp cycle.
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