Straw on thin ice, turning point on the horizon

Supply-side disruptions also come from the expected re-entry of equipment from unscheduled maintenance. In addition, the average age of commercial coniferous pulp plants is higher worldwide. This situation will lead to more unplanned shutdowns for technical reasons worldwide. As of Q3 2022, the global output of bleached needle pulp affected by the unplanned shutdown was 117,000 tons, and the bleached pulp was 230,000 tons. In addition, Q4 Canadian Moon troubleshooting, affected by 34,000 tons of pulp month. High unplanned maintenance in Q3 2022 affects production, always in addition to new capacity, bringing the possibility of supply recovery.

Straw on thin ice, inflection point on the horizon - Annual Pulp Report 2022

4, supply and demand double-edged sword: the Fed rate hike

The Federal Reserve continues to raise interest rates, and the cooling of the real estate market, along with the cooling of the furniture market, may continue. The number of new home sales in the United States has begun to fall, while the number of new homes for sale has accumulated. It means that the real estate market has been hit by the interest rate shock, and the impact has been transmitted to the final consumer and the final sales. Weakening demand for larger timber may cause sawmills to cut back on production, and hence the supply of "scrap" pulp chips. This has led to an opposite trend in the price of the sawmill's main product and the price of scrap wood chips. As a by-product of pulp material may be reduced.

The Federal Reserve's December 15, 2022 federal interest rate target of 4.5% continues the Fed's rate hike cycle. From the price data reflected in 2022, the double-edged sword of the Federal Reserve's interest rate hike has cut more sharply to the pulp production end. But it remains to be seen whether subsequent rate hikes will have such a strong marginal effect.

5. Summary

According to this forecast peak time, then the recovery of consumption including paper products is likely to start in February or March. Without considering the urban-rural peak difference and the imbalance between the national regions, it is possible to recover to the level of November 2022 in Q2 2023 with reference to the experience of Hong Kong, China.

Before the completion of the repair, the new pulp and paper production capacity is difficult to become a constraint on both the supply and demand sides, and the impact of the new production capacity is more reflected in the opening probability, rather than directly affecting the market. Weaker demand increases the likelihood of looser supply. It is worth noting that the repair to the similar level in November 2022 does not mean that the market of 2022Q4 can be replicated, because European and American demand or lose the ability to pull, and trade flow to. Lower than the certainty of economic repair is the operating rate of pulp and paper mills, active and passive downtime, joint price increases, etc., may become obvious after the situation is still existing game points.

Thinking: Expectations versus Reversals, How do we find yaw?

This year's reversal of expectations for conflict comes in the wake of a failed rail strike in North America and less energy scarcity in Europe. In the current situation of lagging economic indicators, are there any observable indicators that can avoid the emergence of an expected reversal?

The North American rail strike, which began in September, reached a provisional agreement, denied the provisional agreement, prepared for the strike, and then the strike was ruled illegal, and the actual strike did not occur. But fluctuations in response to the strike continued. Europe's gas crisis began with the conflict between Russia and Ukraine, ended with the failure of the Nord Stream pipeline to supply gas to Europe, and ended with Germany's agreement with Saudi Arabia, accompanied by other energy sources in the middle. The European gas crisis has not caused pulp mills to shut down for long. Is there an observable indicator of the expected reversal?

If our expectations are derived from the "backward history - induction" paradigm, does it mean that if we observe factors that are abnormal from history, abnormal from deductive results, and there are enough influential factors, it means that there is a possibility of reversal of our expectations based on experience?

Applying this idea to both sets of events, the historical anomaly is the attitude of the government. The three unusual indicators of strike negotiations in the United States are 1) presidential and congressional interference; 2) A shift from the traditionally more pro-union Democratic Party; 3) Opposition from other trade unions. These three unusual indicators may indicate a change in the consensus attitude of the United States from government to civilian - the government's perspective: strikes disrupt the normal order of negotiations.