Credit Suisse Global market pulp producer stocks fell in February to 47 days of supply

February 2009 - demand still weak but inventory drops

Global market pulp producer stocks fell in February to 47 days of supply (measured as end-of-month inventory / 3-months rolling average shipments), down three days from January. We estimate the three day drop in inventory translates to an absolute inventory decline of about 13,000 tonnes, bringing global inventory down to about 4.9 million tonnes, still a very lofty level.

The drop in inventory is explained by a moderate sequential rise in pulp shipments (+4%) coupled with aggressive downtime at mills across all producing regions. On our estimates global capacity utilization operated at 84% in February and shipments to capacity was around 88%. Compared with February 2008 deliveries fell 10.2%.

European consumer inventory plunged 73,000 tonnes in February to 856,000 tonnes, 198,000 tonnes below February 2008 and the lowest level we have on record. In days of consumption European consumer inventory remained at 23 days of consumption, 7 days below the 30 day 10-year average.

We believe NBSK markets may have bottomed supported by lower inventory and increased demand from Asia. Considering greater excess supply and higher inventory we believe downward pressures will continue for hardwood pulp.