Green Markets

EWN Publishing

Gunns gains from commodity price boom: plan based on $US520 a tonne; and wood pulp prices now $US720 a tonne

Posted by gmarkets on 10 October, 2007

According to Malcolm Maiden, in The Age, (5/10/2007, p. B1), stripped of emotion, the pulp mill that Gunns will now almost certainly build on the banks of the Tamar River in Tasmania was part of the commodity price boom that has been carrying the Australian economy along for half a decade. Pulp prices have been steadily rising since 2001 and 2002, off a base of about $US500 a tonne, to a spot quote of $US720 a tonne.

But rise of $A lowers value: Another key factor for the mill was the level of the Australian dollar versus the US dollar, used to price pulp;

• Gunns assumed an $A rate of US70C in its mill proposal;

• The $A is now just above US88C, and at that level would translate to less $A income than it would have at US70C.

Pulp $US720 a tonne: Given that the project was conceived on the assumption that Gunns pulp would sell for $US520 a tonne, time has only strengthened the economic case for the mill. Pulp prices are being underpinned by persistently strong demand from China and the rest of Asia, and in that respect, the project is a value-added version of the quarries that are generating super profits for Australia’s miners, and the Australian economy.

The Age, 5/10/2007, p. B1

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