The annual CPPA meeting in Montreal, Canada, finds pulp and papermakers in an optimistic mood, but there is uncertainty over the future

by Jim Kenny

CPPA throws up a host of talking points

As the pulp and paper industry surveys the first part of the new millennium and prepares to head into the second quarter of the year, it appears that a great deal of optimism is in the air. Paper producers have side-stepped any of the serious post-millennium hangovers that were predicted in terms of slumping demand, while pulp producers are predicting an upward trend in prices for 2000 and possibly even into 2001 if all goes well. Of course, different grades are seeing various degrees of success, but pulp, and especially hardwood pulp, is generating high demand levels. As one commentator pointed out at the CPPA (Canadian Pulp & Paper Association) meeting in Montreal last month, "You only have to look at all the Asians wandering around here looking for someone to sell them some pulp."

Indeed, the bullish market mood was reflected in PPI's web coverage of the CPPA event. The story on pponline.com ran as follows, "Rising demand and constrained capacity will push market pulp prices into an upcycle for at least another two years and could push up benchmark northern bleached softwood kraft (NBSK) pulp levels by 14% this year and by 21% by the end of 2001, speakers on Wednesday told the inaugural annual meeting of the Market Pulp Producers Association."

In the same report, Mark Kennedy, senior analyst at TD Securities, was quoted as saying, "Global pulp markets have not seen a better confluence of events in over 10 years." Kennedy predicted that NBSK prices would rise to $730/ton by the end of this year, reaching $775/ton in 2001.

In Brussels in the same week, PPI This Week reported that a rise of $40.ton was widely predicted for NBSK in Europe. The increase was most likely to take effect from 1 April "as many producers had already committed to maintain the first quarter price", the newsletter reported, but a 1March rise could not be ruled out.

At this stage in the business cycle, it is extremely difficult to disagree with the optimists. Few of the major industrialized nations are forecasting anything but stable growth, and some are predicting some very healthy GDP increases indeed. New PMs and extra capacity are being created during a period when the pulp industry is seeing its lowest levels of pulp capacity addition in many years. And as everyone knows, it doesn’t actually take that many tons as a percentage of the total pulp output to turn the market from oversupplied to undersupplied.

Getting online

In short then, the market looks to be developing nicely, but the Montreal event also paid host to a few new announcements that are likely to affect the pulp and paper industry well beyond the two years under review in most pulp price predictions.

Inevitably perhaps, e-commerce dominated much of the talk and conjecture at the CPPA meeting. It seems that the bug is catching and practically everyone is talking about web strategies and refocusing their business operations to match the needs of their customers. The problem here is that many of the people involved are still feeling their way along the path to a truly "web-enabled" business. Some of the more enlightened companies do in fact have fairly sophisticated internet concepts in operation, but some executives are "still trying to get to grips with e-mail", according to one expert in the IT field.

The trip to CPPA/Exfor this year did throw up one main difference though. Whereas last year, staff and executives at the show still had a lot of skeptical comments to make about the internet, the 2000 event found practically everyone dashing round trying to find ways to get online or improve the internet capabilities they already had. Clearly, the mindset has changed within the industry as a whole and it is now practically impossible to find anyone who doesn’t think that the worldwide web is going to bring some radical changes to the pulp and paper industry.

Across the pond

The other big topic of conversation at this year’s CPPA meeting focused on the incredible degree of consolidation across the industry. Although it is a worldwide trend, merger and acquisition activity has been particularly pronounced in North America. Most people believe that the pace of last year can be repeated and there was a lot of speculation regarding some big deals to come. But many questioned whether the large mergers could realistically be expanded beyond companies based within the same geographic regions.

Clearly, there are some obvious tie-ups that could be exploited between some of the big European and North American groups, but like many things in life, it all comes down to price. For example, the two big Nordic companies have a lot of cash available this year, especially since Stora Enso sold off its power assets. But a swift look at the difference in price/earnings ratios illustrates just one of the major obstacles to be overcome in putting together such transatlantic deals )see table).

Even so, the comments from Canada indicate that we can expect a lot more mega-mergers to come, despite this apparent brake on activity.

Stories

Columns