Pulp and Paper Canada

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NA paper mills skirt Katrina’s wrath


August 30, 2005
By Pulp & Paper Canada

According to a Merrill Lynch research report, the impact of Hurricane Katrina, which has ripped through the southea…

According to a Merrill Lynch research report, the impact of Hurricane Katrina, which has ripped through the southeastern U.S. and is expected to reach parts of Canada later this week, will be minimally felt by North American paper mills.

"We believe the impact of Hurricane Katrina will be fairly limited for the paper industry," the report said. "The path of the hurricane seems to be avoiding a direct hit on the mills."

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The report also indicated that some mills might have elected to close for a short time due to safety and power concerns. However, as the report highlighted, this development isn’t cause for concern. "Of course, to the extent there are some shut-downs, it will serve to slightly reduce supply not necessarily a bad thing."

The hurricane has cut electricity to about 2.3 million customers, or approximately 5 million people, in four states, utility companies have confirmed. Restoring power could take weeks, they warned.

Where there is cause for concern, however, is how the storm will affect fibre supplies. The report called attention to the increased fibre costs that resulted after last year’s series of hurricanes. "Essentially the timberland could get too wet to harvest in areas, making it necessary for the mills to get fibre from further away, driving up costs."

Merrill Lynch also reported that energy prices have taken a jump due to distress over the dire weather patterns. "If [energy prices] are sustainable, [they] will negatively impact paper companies," the document predicted. Currently, roughly 91% of U.S. oil production and 83% of natural gas production in the Gulf of Mexico has been shut down. U.S. crude-oil prices settled at just under $70 a barrel, but analysts have confirmed that retail gasoline prices are expected to jump well over $3 a gallon in most parts of the country as early as this weekend.

The pulp and paper industry isn’t alone in its surging prices. The storm has served as an impetus for increased cotton, coffee and soybean prices. Investors are now concerned that higher fuel and transportation costs will squeeze corporate profits while consumers adopt more conservative spending habits.

Meanwhile, some pulp and paper companies are doing their part to meet increased product demand while not necessarily burdening customers with higher prices.

As the storm approached and struck Louisiana, Mississippi and Alabama, demand for structural panels such as plywood remained high. Georgia-Pacific held its panel prices at pre-storm levels in declared disaster areas where supplies had taken a downturn. The company has also confirmed it will work to provide post-storm repair needs.

Estimates of the overall cost of dealing with the floods and other damage in affected areas vary, but some experts have said that combined public and private spending could run as high as tens of billions of dollars. The storm is responsible for the confirmed deaths of at least 100 people in Mississippi, and reports have indicated that between 50 to 100 people have died in New Orleans.

Transportation is expected to create further chaos. The Coast Guard has closed all ports from New Orleans to the Florida Panhandle. With about 80% of New Orleans submerged and the damage felt as far as Mississippi, the region’s road infrastructure area has been compromised with flooding and toppled concrete bridges.


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