Demand for coated freesheet and uncoated freesheet paper demand improved upon April/May numbers; however, demand for uncoated groundwood and newsprint were worse. Mill operating rates for printing and writing grades averaged 60% in Q2-20. Producers have shown discipline with respect to supply adjustments and paper price erosion, considering the rapid retreat in orders since the coronavirus pandemic hit North America. Year-to-date, paper mills have removed over 1.6 million tons of capacity through announced downtime and closures, in addition to Verso’s closure of their Duluth, MN and Wisconsin Rapids, WI paper mills this summer. The industry will look for some recovery of demand as the COVID-19 curve flattens and the economy stabilizes, but to what extent remains unpredictable.
Verso’s CEO stated that their shutdown of Duluth and Wisconsin Rapids, WI, mills should enable the company to run more profitable mills in Escanaba and Quinnesec, MI; and that the se two mills could reopen if the graphic supercalendered paper market rebounds.
Verso reported Q2 20 net sales of $268 million, down $334 million compared to Q2 19, and adjusted EBITDA of $(9) million, compared to $44 million in second quarter 2019.
Resolute Forest Products reported paper sales, including newsprint and specialty uncoated mechanical, in the second quarter at $208 million, or 28% lower than the first quarter and 41% lower than a year ago, while EBITDA decreased to $4 million this year from $14 million last year.
Domtar announced it would permanently shutter its remaining paper machine operations at its Ashdown plant to save $200 million by 2021. The company will transition its Ashdown operations to soft wood and fluff pulp production.
Domtar announced it will permanently close its Port Huron paper mill, which employs nearly 200 employees. The Port Huron mill was chosen to close because it is a specialty paper mill and lower cost competition kept entering the market, so it became difficult for the mill to compete with its cost structure.
European print industry lost 30% of volume in April amid COVID-19 restrictions, with some recovery starting in May. Recovery should continue, but at a slower pace and not reaching pre-COVID levels soon. European paper prices rose last month.
Veritiv’s Q2 20 net loss worsened to US$18.5M from US$11.3M in Q2 19…on sales down 28.3% to US$1.40B.
Wood Pulp – Prices have risen 2% YTD since January, but overall down 5% vs. last July.
Currency Exchange – The US Dollar has declined in recent months in the fallout from the COVID-19 pandemic. The CAD is at 0.75 and the Euro at 1.18 today. Source: OANDA
US real GDP – decreased at an annual rate of 33% in Q2 2020. In Q1 2020, real GDP fell 5%. Remains well below pre-pandemic levels. Source: Bureau of Economic Analysis
Consumer Confidence Index – decreased in July, after rising in June. The Index is now at 92.6 (185=100), down from 98.3 in June. Source Conference Board
Paper Grade Review
Coated grades – Despite the COVID19 induced rapid halt to the coated paper market, prices have held relatively steady this year. This is due, in large part, to producers regulating supply and to inelastic demand for paper right now. Industry forecasters predict that coated prices could fall slightly by the end of 2020, but don’t forget that major capacity closures can have immediate impact to market volatility.
Uncoated freesheet grades (UFS) – UFS offset prices have fallen a modest 3-5% this year, considering the circumstances. The bounce-back in UFS demand in June and the prospective increase in demand for election materials and from those institutions that re-open amidst the pandemic, should keep this market relatively steady for the remainder of this year.
Uncoated groundwood grades (UGW including SC) – Print on paper has seen some recovery since the COVID-19 impact in April and May, but news of increased outbreaks of the coronavirus and the stimulus stalemate in Congress will dampen US consumer spending and advertising for the foreseeable future. Industry analysts predict almost 30% declines in demand this year for UGW.
Newsprint grades – Prices for newsprint have dropped around 8% this year. Newsprint demand is projected to decline almost 30% in total for this year, which will cause continued downward price pressures until mills are forced to make major permanent capacity shuts to right-size supply with demand.