Pulp and paper prices are cyclical. The theory is simple: High economic growth leads to high paper consumption and demand. This in turn leads to high sales, high prices and high profits for the paper industry. Companies invest the money in new capacity. By the time the new capacity comes on line (five years later), economic growth has slowed. The market is flooded with paper (or pulp) and prices collapse.
But does this explain what’s currently happening? In North America and Europe the industry is closing mills. At the same time it is expanding in the Global South. Production is cheaper in the South, trees grow faster and governments make sure that large tracts of land are available for plantations. Pollution regulations are less strict than in the North. Consumption in China (largely for packaging) is supposedly driving this expansion in capacity.
- 1993 prices for paper were at their lowest since the second world war. (Source: Paper Task Force  p. 39)
- By mid-1995 prices for some grades had begun to soften. (Source: Paper Task Force  p. 39)
Paper prices in the USA, 2000-2006. (Source: Hannu Ryöppönen, Senior Executive Vice President & CFO, Stora Enso, presentation at UPS Global Paper & Forest Products Conference – Can the industry turn restructuring into improved profitability?, 19 September 2006, New York.)
Hannu Ryöppönen, Stora Enso:
“Price is the thing that we don’t control and I don’t expect to be able to control it either, going forward. So it is what it is. I think we can do what we can do internally to improve our platform on which we stand, so that we can deal with fluctuations in price be it up or down. Obviously up is always easier and is good news, generally speaking.”
Pulp prices 2000-2006. UPM CEO presentation on Interim Report second quarter 2006).