First Quarter 2011

Before commencing my report, and on behalf of all in the Paper Division of BIR, I would like to express my sincere sadness at the vast loss of life suffered by the Japanese population in the Earthquake and Tsunami in March. Our thoughts are with all their families & friends.

 

The New Year started with concerns over the shifting trends in the Western & Emerging economies caused by rising oil prices, increasing interest rates, rising unemployment, and fears of inflation against a buoyant growth forecast for the Emerging economies, namely China, India, Indonesia, Brazil & Mexico.

 

Manufacturing output in these Emerging economies continued to grow while Economists continued to forecast a drop in overall production in the Western economies overall.

 

Europe continued to be embroiled in the Eurozone debt crisis, with Portugal being its latest victim. However, the positive news from Europe was that the big Western economies, Germany France & UK, were beginning to show signs of growth. Germany is leading the field with a projected growth of about 2.5 to 3%.

 

Manufacturing order books are looking busy, and the growth seen in Europe looks strong and is likely to last for some time.

 

The effects of the coldest December for 100 years continued to take their toll in the early weeks of the New Year, and, due to poor collection levels, OCC prices rose steadily to USD235+ by the end of January. Following the Chinese New Year holidays, demand remained firm & the upward trend held with prices climbing to USD245+, where they finished the quarter strongly.

 

Similar trends were seen in Mixed Paper with prices moving up to USD220+ by end of January and ending the quarter at levels of USD227+.

 

Demand from China, and other Asian countries continued to grow, with an equally competitive demand seen from European domestic Mills. This put pressure on volumes available for export and also resulted in firmer prices.

 

The effect of the Japanese Tsunami has also affected the recovered fibre prices towards the end of the first quarter, and will continue well into the second quarter.

 

Demand from other Asian countries, India, Indonesia, Thailand, Vietnam, Taiwan & Korea, continued to remain strong, with demands for all grades continuing to grow.

 

Freight rates continued to reduce during the quarter and by the end of the first quarter we had seen a decrease in freight rates of over USD500. At the end of the quarter, freight rate levels were still projected to weaken, going into the second quarter. The weakening freight rates will result in most carriers forecasting losses in their Financial Reports in the first quarter of 2011. The risk therefore being that by the third quarter we may see either increasing freight levels or a reduction in the number of ships serving the Trade, thereby reducing space availability.

 

The challenge facing the paper Mills in Asia, is to be able to meet the rising demand for new paper at the current price levels