STOCKHOLM, May 17, 2010 (RISI) -The pulp market really is like riding a roller coaster; the market today looks completely different from how it looked a year ago. While the short-term perspective is difficult, however, pulp producers do need to look at the long term and there are factors influencing how the market will look in the future, namely demographics, competing materials, economics and energy policy.
Demand for wood products in the future will be heavily influenced by demographics. World population in 2005 was around 6.4 billion but is projected to rise to 7.5 billion by 2020. That means a lot more demand for forest products. Another important factor is that, in the West especially, the number of people living in single households is predicted to increase by 20% by 2030 compared with 2005, which will also have a significant impact on overall fiber demand, from furniture to construction timber and maybe pulp and paper.
The most important driver?
Economics is another key driver. As living standards rise, demand for forest products increases. Competition from other materials will also be an issue: Will it be important to have a low carbon footprint, to have recyclable materials, or will other factors come into play?
Perhaps the most important driver is energy. Wood was historically used as fuel before being replaced by oil and electricity, but this is changing again. Financial incentives encourage the use of wood for fuel, especially in the EU, which is committed to achieving a 20% renewable energy target by 2020, up from 8.5% in 2005. In the future, energy prices will be a factor in setting the price for wood.
The supply of wood, then, is going to be tight. And while rising living standards generate increased demand for forest products, the tendency to look at forests for conservation and tourism also increases as standards improve, removing more forest from production. Forests remain vulnerable to natural attack too, from pests, fires and storms which can all temporarily affect supply.
Bio-fuels and electricity - a valuable contribution
Against this background, it's vital that forest companies maintain a focus on improving productivity in forest management. In Södra's case, its mission is to deliver value to its 52,000 member forest owners and to see the future as a challenge not a threat, using it to invent and improve. The company looks at productivity from the forest through the mills to customers, adding value to their processes, and focusing on new ways of providing new materials.
Our competitors are increasingly energy producers as well as other pulp suppliers, which is why Södra is also focusing on energy efficiency and aiming for independence from fossil fuels (the Värö mill is already there for day-to-day operations). There's also an opportunity here to enter the energy market as a player - Södra already sells bio-fuel, electricity and district heating which together make a valuable contribution to the bottom line.
Pulp suppliers need to increase productivity for customers by focusing on value-added product development. Södra has 50 people in R&D who work with the mills and customers identifying areas to improve. New business development is also heavily driven by R&D. By looking at its existing product portfolio and seeing what more can be done, we are starting to ask what else we could do with pulp and its by-products, both to generate new business with existing customers and to create new ones. The chair and lamp made from Durapulp, a brand new composite material made by combining pulp and polylactic acid, are an example. It doesn't mean Södra will become a furniture retailer, but it shows what can be done with pulp, and how pulp mills can use the resources already in place to do things differently, and better, to secure their place in the future.
The pulp market of the future is hard to predict but we know it will be difficult to find low cost fiber in the future.