AFTER FIFTEEN MONTHS of rising prices, the pulp market is starting to look a little fragile as production continues to ramp-up despite a sharp decline in Chinese orders. The global economic recovery is also showing signs of stalling, as evidenced by crumbling consumer confidence in the US, Europe’s continued debt crisis, and recent downward revisions to China’s economic growth prospects. Weak manufacutring data in Asia combined with a 40 percent decline in the Baltic Dry Index during June has heightened concerns over the Chinese economy. Although this volatile index can be distorted by the supply of new ships, many believe it serves as a barometer of performance for China and commodities. Most commodity prices fell during June and many indices are off by as much as 10 percent since March. Historically, pulp prices have had a tendency to lag these indexes by 2-3 months.

Although some pulp markets remain relatively tight, not least in Western Europe, no major changes in list prices are proposed for July nor are any expected for August. Consequently, the focus of attention over the next two months is likely to be on the pulp supply and demand data. It will be this data, coupled with the euro/dollar exchange rate that determines whether producers or consumers assume control over prices when the market returns to normal business after the summer holidays. In the absence of a pick-up in Chinese demand, it looks increasingly likely that consumers will assume the initiative, especially for hardwood grades.