Cost and Price Index for Pulp, Paper, and Packaging Industry
For certain paper and board grades, the virgin pulp is the main raw material and the virgin pulp mix costs have a major effect on product variable cost fluctuations and thus also the paper price is normally reflecting this development over time. This can be also seen in the index development during 2019–2020.
For the below charts, we have collected data from public sources and calculated a Furnish Fost Index implicating the trend in producer’s fiber material cost development when a certain virgin pulp mix (short fiber/long fiber) is being used. In a similar way, the Kraft Paper Price index has been calculated for < 150 gsm Kraft Papers.
These indexes are best describing the furnish cost and paper price development for paper grades that have high virgin pulp content (80–90 % from the end product weight). Typical papers are kraft papers (sack, bag, kraft liners, etc.).
If the paper grade has high filler and/or coating content the index is not directly applicable due to the fact that other raw materials’ price changes have also a major impact on the producer’s variable costs.
The actual furnish cost at the paper machine for the individual producer is dependent on many factors, e.g.:
- Pulp mix differences (share of short fiber/long fiber)
- Share of other fiber sources than virgin pulps
- The total share of fresh fibers in the product (fillers and additives, broke, moisture, etc. reduce the share of fresh fibers content in the end product)
- Pulp handling and dilution costs (labor-related costs, electricity, water, etc.)
- Pulp purchasing price variables:
- Business model: Market Pulp based or Integrated producer.
- Integrated producers’ transfer pulp pricing could be based on pulp costs, market price, or on something in between.
- In the case of integrated producers, the model selection can vary and is affected by the corporate profit center structure and by the strategic approach to markets. The costs are in reality lower on a corporate level than for market pulp-based nonintegrated productions due to lower costs for pulp drying, dilution, logistics, warehousing, and marketing and service which are included in the market pulp price.
- Nonintegrated producers’ net price includes high rebates from the so-called pulp market price (20–30 %). These are negotiated btw. the seller and the buyer.
- Warehousing, logistic, and service costs of the pulp producers subject to individual contracts and mill destinations, and lead times.
- Local currency exchange rate against the raw material sales price currency.
The European import pulp price has been heavily declining since 2019. There is a clear difference in the price of softwood and hardwood pulps grades. This gives cost optimization possibilities for the producers. Lately weakening the US $ has decreased the cost for producers when calculated in €.
It looks like the declining cost trend has reached the bottom towards the end of 2020. The uncoated Kraft Paper Index has slightly resisted the Cost Index development since mid-2019.
The volumes behind this data are > 15 million tons of Kraf Paper Imports and > 15 million tons of Pulp Imports into 28 European countries btw. 2019–2020.
For more information contact H&H Advisors.
H&H Advisors is a Trusted Advisory Firm to Companies in the Forest and Manufacturing Industries.
We help businesses become highly competitive. With our expertise and business development programs, our clients achieve better results, grow fast, and increase the value of their companies.
We work with our clients to identify and solve the key challenges facing their business, find new ways for growth and improved profitability, as well as assist the business owners with a potential sale or acquisition of a business.
We make customer-specific studies and assessments based on enquires from our clients related to strategic development, business opportunities, investments, and M& A opportunities.
You can find all our public newsletters from this publication platform. Subscribe to our newsletters from our website hhadvisors.fi
