PPI Magazine

Eruptions in the pulp industry

By Justin Toland Tue, Apr 20, 2010

VANCOUVER, BC, April 21, 2010 (RISI) -I WRITE THIS blog from Vancouver, where I am spending an unscheduled extra day as a result of the cloud of volcanic ash currently drifting across European airspace. The eruption of Eyjafjallajökull has created mayhem for businesses, schools, holiday-makers and politicians. Although flights are now restarting (and I hope to be home within the next 48 hours), some vulcanologists (our new favourite experts) are predicting potential further flight restrictions in the coming weeks and months as nature takes its explosive and unpredictable course.

Ash control of another kind is a subject very familiar to pulp producers and this new ash problem, if it persists, adds a disruptive new factor to the mix when it comes to that hot topic: pulp prices. As if the effects of the Chilean earthquake and extremely cold weather and strikes in Europe hadn't done enough to tighten pulp supply already!

In the extremely short-term then, the logistical bottlenecks caused by the Icelandic volcano could help push pulp prices even higher (although this may be mitigated to some extent by the decision of the International Court of Justice in The Hague to allow the Botnia Fray Bentos mill in Uruguay to continue operating, despite finding in favour of Argentina in the long-running dispute between the two countries).

However, if Eyjafjallajökull continues to spew ash in such large quantities that flying has to be restricted for an extended period, or if it triggers an eruption by one of its neighbouring volcanoes, then the current market paradigms could rapidly be turned on their head. Media commentators have made frequent reference to the Icelandic volcano having a bigger effect on flight movements than the shock of 9/11. A quick glance back at the historical pulp indices will leave no-one in any doubt about the depressive effect on pulp prices in Europe and North America of that 'seismic' event. Could a seismic event in the real (as opposed to metaphorical) sense now be about to cause such a drastic drop in consumer spending and business growth across Europe that pulp demand once again falls below the supply curve?


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