Chilean price war hits Carter Holt

By PAM GRAHAM

Carter Holt Harvey is taking a hit from a fall in pulp prices in China as Chile and other suppliers aggressively cut prices.

New Zealand's biggest forestry company had been hopeful that a fall in the price of pulp in China to US$580 ($890) a tonne in August would return to the US$610 a tonne achieved in previous months.

However the price fell another US$50 a tonne to US$530 a tonne in contracts signed in the last two weeks. Carter Holt is having to accept this price.

The price drop has caused Macquarie Equities to downgrade its recommendation to investors and profit forecasts for the company.

In a report, analyst Stephen Hudson said while spot pricing for pulp was volatile, factors driving prices could prevail for some time.

Brice Landman, the company's chief executive of pulp and paper, said the volume that China ordered was down in the last two months because it was summer and because authorities had limited credit to buyers.

"I think we have to see what happens in the next couple of months," he said. He declined to comment on what impact the price fall would have on company profits.

About one fifth of the pulp the company sells each year is sold in China. It sells all of its pulp in Asia.

Arauco, a subsidiary of Cia de Petroleos de Chile, is the biggest supplier of pulp to Asia and therefore, a price leader.

Macquarie said Chile's currency had remained more competitive against the US dollar, allowing a more aggressive stance by Arauco.

Landman said pulp inventories had risen globally but some Chinese buyers had used up stock when a credit squeeze went on.

China has been trying to reduce demand in its economy by tightening credit, drawing criticism from analysts supporting free markets.

China's central bank said yesterday the Government's efforts to slow the economy were at a key stage and showing preliminary success, Bloomberg News reported.

China's economy grew 9.6 per cent in the second quarter after expanding at a 9.8 per cent pace in the first three months. That had caused concerns about inflation, energy shortages and put pressure on transport links.

Carter Holt's shares fell to $2.32 yesterday from $2.46 two days ago.

The shares were up 6.3 per cent since the start of the year and the the market was waiting for a decision due in the fourth quarter on whether the company would sell its forests.