Wood fiber shortage reduces pulp production in Indonesia in the 4Q

According to the Wood Resource Quarterly, pulpwood costs in Indonesia reached a record high in the 4Q/07 due to police clampdown on illegal logging, which limited the availability of wood fiber.

The pulpmills in Indonesia are struggling to supply their mills with wood fiber because the Indonesian police have been clamping down on illegal logging during 2007. President Susilo recently declared that illegal loggers and their financial backers were the “common enemy,” and should be brought to justice.

As a result of the tight wood fiber supply, pulpwood prices have gone up at least 25% from a year ago, averaging over $60/odmt in the 4Q/07, according to the Wood Resource Quarterly. However, pulpwood costs vary substantially depending on the location of the pulpmill.

With the reduced availability of tropical hardwood, the major pulp companies, APP and APRIL, which together account for 65% of the country’s production, have been forced to prematurely cut trees from their own plantations. This temporary solution can only continue until the end of the 1Q/08, according to the chairman of the Indonesian Pulp and Paper Association. Thereafter, a number of pulpmills will be forced to cut back production substantially.

The association has claimed that the pulp production in 2008 may be down by to only 1.7 million tons, a 75%(!) decrease. However, it is not likely that the production will actually fall that much. The announcement from the association should be seen as a way of drawing attention to the wood supply problem and hopefully making the politicians take action to resolve the dispute between corrupt local government officials, industry leaders, environmental organisations, local citizens and the country’s president, who is trying to make a political statement.

The pulp industry in Indonesia has expanded substantially the past ten years, with production increasing every year until 2006 when it reached a peak at 5.6 million tons. In 2007, production fell by 10% to 5.2 million tons (80% of capacity) as the largest pulpmills had difficulty supplying their manufacturing facilities with wood fiber.

The next few years appear very uncertain for this industry. Pulping capacity will increase as the major companies, APP and APRIL, are both planning debottlenecking investments that may increase capacity by almost one million tons over the next two years. In addition, United Fiber Systems is planning a 600,000 tpy capacity greenfield mill in Kalimantan with a preliminary start-up of 2009. The wood fiber sourcing for the expanding industry is problematic and, at least in the short-term, it can be expected that the major pulpmills will run at reduced operating rates.

Global pulpwood and sawlog market updates are included in the 50-page publication Wood Resource Quarterly. The report, established in 1988, also include regular updates of pulp, lumber and biomass markets and has readers in over 20 countries.

Contact Information:
Wood Resources International
Hakan Ekstrom
Seattle, USA
info@wri-ltd.com
www.woodprices.com

Contact Information

Hakan Ekstrom

President

WRI

Contact via E-mail