Paper Market Update February 2020

February 4, 2020

Overall demand for paper is weak, as some producers seek relief by transitioning to more profitable specialty and packaging grades. The continued secular decline of print is causing significant disruption to most paper market segments within the printing and writing grades.

Recent News

Verso has reached an agreement with Atlas Holdings and Blue Wolf Capital (ABW) to settle the pending proxy contest regarding Verso’s 2019 Annual Meeting of Stockholders and certain other matters. This includes four current Verso Board members stepping down, in lieu of three others nominated by ABW for election to the Board. In addition, pursuant to the Cooperation Agreement, ABW agreed to vote “FOR” the Company’s pending sale of its Androscoggin and Stevens Point mills to Pixelle Specialty Solutions LLC. (source: press release)

Verso is seeking public assistance in the form of a $2 million Minnesota state forgivable loan, plus $242,000 in local economic development funds, to aid them in their Duluth mill’s partial conversion from printer paper to recycled paper packaging. (source: internet)

Numerous strikes across Finland’s pulp and paper industry began January 27, after negotiations between unions and employers broke down. The strike has been extended to February 24 unless parties can agree on the union demands. Paper mills in Finland have taken steps to minimize any impact to their customers, through surplus production. (source: internet)

UPM posts Q4 profit of €263M from €591M a year ago as sales drop 10% to €2.45B on lower graphic paper deliveries and weak pulp prices. (source: press release)

Resolute recently announced an investment to add “high grade” SCA+ production to its Kenogami mill, which would increase the supply of those grades to the US. (source: press release)

Market Drivers

Wood Pulp transactional prices dropped by 22% in 2019, but have remained static since October.

Currency Exchange rates have not changed much the past month. The Canadian dollar has averaged $0.76 over the past 6 months. The euro dropped from $1.14 to $1.11 in 2019, and there it has hovered YTD 2020.

Significant production capacity has been removed in printing grades of paper since 2016, and that trend will accelerate in 2020 as surplus production capacity exists throughout most segments.

Paper Grade Review

Coated grades – Coated paper shipments in North America are forecasted to decline another 400,000 tons in 2020. It will take more than the capacity reductions at ND Paper (Biron PM conversion to linerboard), Sappi (as it ramps up SBS production) and New Indy (conversion to packaging) to restore balance to this market. Expect coated prices to be pressured until significant capacity shuts are implemented by producers. The only exception will be CGW roto grades, which are firm for 2020. Coated paper is readily available with normal mill order lead times of between 6-10 weeks, depending upon grade.

Uncoated freesheet grades (UFS) – The UFS market is stronger than most, which should keep UFS prices stable until International Paper’s conversion from UFS grades to high quality white-top linerboard and containerboard at their Selma, Ala. mill in Q2-20. Imports are down and shipments actually rose in December, for the first time since October 2018. Mill order lead times are normal…between 6-8 weeks including transit time.

Uncoated groundwood grades (UGW including SC) – UGW is a story of two segments with very different market dynamics. Demand for UGW high bright and super bright grades was down by a dismal 21% in 2019, according to industry data. The 2018 tariffs imposed by Canada on these grades, destroyed most of the demand as customers opted for cheaper alternatives such as newsprint, or in some cases, upward migration to SCB grades. Once the tariffs lifted, the demand never returned for UGW high bright grades as customers continue to seek ways to reduce their ad costs. The other primary UGW segment, SCA/A+…has been aided by downward migrations from lightweight CGW grades, thus, demand for these grades fared far better than other UGW grades, down only 6% in 2019.

Newsprint grades – The newsprint market is in swift decline with no end in sight. As foreign newsprint markets have waned, even the offshore export opportunities have dried up for domestic producers. In their January 2020 issue of Paper Trader, Fastmarkets RISI predicts that newsprint demand will fall another 292,000 tons in 2020. Further, they forecast that at least 560,000 tons of newsprint closures in North America will take place in 2020, 330,000 tons of which have yet to be announced by producers.