Market Updates - KLB price hike

Date : 13/11/2009

The recent move by US policy maker in removing black liquor (material used in pulping) credits has resulted in price hike for KLB (Kraftlinerboard) across Europe and Middle East. Some believed that the price hike will eventually spread to Asia as well.

In view of the raising production cost of KLB after the removal black liquor credit, new contract price of KLB will increased substantially. As market reseach showed that with the current subsidies most of these pulp mills were only making a marginal profits. Thus, the sustainability of these mills depend very much on the success of future price hike. Similarly, the recent shutdown of containerboard mills by major corporate companies in US will further strengthen mills position in raising the price of KLB. However, the imports of Kraft Top Liners from Asia into US will give a challenge to domestic US mills in raising it prices.

With the removal black liquor subsidies, one may foresee that pulp prices ie USKP and BSKP will also raise to its next level. As such, there are more sentiments that indicate that future prices of KLB will be higher than current year prices. Similarly, one may also foresee that pulp substitutes (recovered paper) like Hard White Shavings and AOCC will escalate further from current prices.

The success of price hike for KLB is very much dependant on the followings

a. The demand for KLB in 1Q2010. At 4Q2009, we foresee that prices of KLB will maintain due to normal low demand season - low working days (Christmas & New Year) despite high in Unbleached Softwood Kraft Pulp prices. However, generally in Asia, business is slow in 1Q2010.

b. The price gap of the Asian Kraft Top versus KLB. At present, the price gap is substantial. However, with the continuous increased in USKP price, this may close the gap. Thus, price hike for KLB may be successful.

c. The new start up of a KLB mill in Australia in 4Q2009. The additional supplies may deter the price hike of KLB. At present, there are a substantial exports of Australian KLB to US.

d. The exchange rate of USD vs other major currencies. The continuou weakness in US Dollar may result in cheaper KLB even after the price hike of KLB

Based on the above sentiments, there is high possibility that the increased may not be successful. Nevertheless, US mills had no alternative but to push forward or risk being closed down.