History suggests that 2005 may bring rich rewards for the UK recovered paper sector, although the year could well begin with a decline in some domestic prices.
Over recent decades, the industry's fortunes have traditionally peaked in 10-year cycles, with the boom tending to be focused in years ending with a five; the top of the previous spike, for example, was in 1995. Twelve months ago, evaluation of the fundamentals had led many industry experts to predict that this boom was destined to occur in 2004, but their hopes have gone largely unfulfilled. Taking KLS as the bellwether, domestic prices slid as low as £35 per tonne early in the year before mounting an encouraging recovery to £45 by the start of the second quarter; indeed, some consumers were reportedly paying £50 in order to secure supplies. However, the ensuing nine months of 2004 brought no measurable improvement in the KLS price.
Overall, recovered paper prices have fallen disappointingly short of the reasonable expectations expressed at the start of the year. Indeed 12 months later, pressure is said to be growing for lower KLS prices in January following €5-10 per tonne decreases on the Continent. However, some key fundamentals still support hopes of a significant price recovery during 2005: stocks in UK merchant processors' yards remain at a low level; overall demand has continued to be strong; and massive new capacity is slated to come on stream in some of the UK's key export markets. Given the recent slump in pulp stocks and confident predictions of a harsh winter in North America, the scene would appear to be set for a positive market development early next year, although some experts believe any upturn may not begin in earnest until the second half of 2005.
The number of enquiries coming in from China has increased substantially over the course of the year. And whereas the Chinese New Year would have previously signaled a month-long pause in buying activity, purchasing patterns over the last couple of years have remained far more even throughout the year.
Meanwhile, UK exporters are still reporting difficulties in securing sufficient shipping space to supply the increasingly important Indian market. For the moment, India is prepared to pay £7-8 per tonne more than UK mills for some of the tissue grades. MRW was informed this week: "A few of the UK mills are running around looking for material and are wondering why they
can't get it. They react far too late every year - if you are going to run through over Christmas, you have got to move your prices in October. They did so, but not by enough."
Returning to KLS, some buyers in the Far East were talking in terms of a slight price reduction in January, whereas domestic mills were muttering about dropping their own levels. UK recovered paper experts cast doubt on whether such reductions can be made to stick; at the same time, they emphasise that a £5 per tonne cut in the