(Rio De Janeiro, Nov. 21, 2016) Market fundamentals for Latin American pulp producers and near-term visibility for pulp prices are expected to be weak in 2017, leading to a shift in outlook from stable to negative for both ratings and the sector, according a new Fitch Ratings report.
‘Prices for hardwood pulp remain weak due to the oversupply of pulp that resulted from new projects. The dynamics of softwood pulp remain more favorable comparatively,’ said Fernanda Rezende, Director at Fitch Ratings.
‘Continued expansion of hardwood pulp mills make producers reliant on growth in Chinese demand, plant closures, and a recovery in the U.S. and Europe for upward price momentum.’
Fitch believes market pulp is already close to marginal cost and will continue to force plant closures of high-cost producers. In the medium term, hardwood and softwood pulp price differentials should remain supported by stagnant supply levels of softwood pulp, while hardwood pulp capacity should expand significantly.
Soft pulp prices and weaker demand in the local markets could weaken pulp producers’ credit profiles by pressuring cash flow generation and leverage. Leverage increased across the sector, due to high levels of investments in recent years, and reduction will take longer than expected.
The full report titled ‘2017 Outlook: Latin American Pulp, Paper and Forest Products’ is available at www.fitchratings.com (Source: press release)