The global economic slide kick started the paper industry’s earnings downturn due to less demand for coated papers and pulp in 2009 with the net effect, for one local mill at least, being significantly lower profits. Many of the more future-focused merchants responded to the slump by broadening their portfolios in preparation for the upswing and to attract new customers through more diverse offerings. Some also streamlined their operations with just-in-time delivery processes aimed at reducing inventories with their associated capital outlay and ongoing operational costs, and still fewer managed to streamline receiving, off-loading, stacking, picking, cutting and distribution.
This kept them going at a time when the cost of paper pulp rose by a whopping 40% in just short of a year. The reason for the rocketing pulp prices was a shortage of pulp, even amidst reduced demand, due to supply restrictions. It’s hardly surprising considering that demand for paper products generally shows an upward trend. Lyra Research reckons there are now 15,2 trillion pages printed every year. In the meantime there was a rumble beneath the ocean off the coast of Chile. The magnitude 8.8 quake has since all but halted the production of pulp in the country which accounted for about 8% of the world market. It took down power lines and interrupted the supply of water, electricity, wood,chemicals and transport of the finished product with the harbour at Concepcion being damaged. The plants themselves were also shut down to be inspected for structural damage. Most pundits expect supply to be interrupted for at least a month but the longer the interruption the greater the shortfall will impact pulp prices in the near term. South African paper merchants get at least some of their paper products from European companies so they will immediately feel the financial and supply effects of the Pacific quake but they also source products from Indonesia, Korea and South Africa.
The net result, while not entirely catastrophic, is already shaping up to be a constricted industry with even tighter margins pinched by rising dollar pulp prices and stagnant volumes but somewhat buoyed by more diverse product ranges and operating efficiencies.
On a more positive note, the wellbeing of the environment is a global issue on many people’s minds. Some are interested in hybrid motor cars. Others are interested in Eskom’s new coal power plants amid the embers of South Africa’s Copenhagen declarat ions. Still others are interested in trees; more specifically: smashing them to a pulp and ironing them flat. Or not.
The problem is that the paper business has been booming, which has led to a shortage of pulp and, the aforementioned average increase of 40% in dollar-based pulp prices in the past year alone. The boom in paper use is linked to the global population boom. According to the UN it was around 1.7 billion by 1900, rose to 2.5 billion by 1950 and has since gone stratospherically to around 8 billion today.
But why should that be a problem for businesses always looking to grow, always looking to expand, and always seeking greater volumes and profits? The problem is that the paper must come from a very finite somewhere, and that somewhere is forests. And without forests there is no paper industry at all. There were almost four billion hectares of trees in the world in 2000, according to the Forest Resources Assessment of that year. While that may sound like a lot, it only equates to less than 30% of the earth’s total land area, itself only 34% of the global surface. Today deforestation since the tree’s heyday almost 8 000 years ago is around 80%. The upshot is that people have become aware of the necessity to maintain what remains of the environment and paper, and paper-related companies must take a keen role.
Mills supplying responsible paper merchants maintain sustainable forests in compliance with the rules set out by the Forest Stewardship Council, a not-for-profit, non-governmental and independent organisation that operates in 46 countries. It sets standards, offers assurances and accredits services that adhere to responsible forestry. These mills also comply with the Programme for the Endorsement of Forest Certification schemes (PEFC Council), a global umbrella programme, independent, non-profit, non-governmental, founded in 1999 that promotes sustainably managed forests through independent third-party certification.
Responsible mills and paper merchants are significant role players in sustaining future paper supplies and listed South African businesses, and other environmentally conscious corporate citizens, play an active role when they support these accredited organisations.
Nor Paper: T +27 (0) 11 615 5588
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