Demand for paper has quickly eroded since mid-March. Mills are operating at less than 70% capacity in most cases, and producers are continuing to take rolling downtime to adjust supply downward…as well as “indefinite” closures of entire mills. Demand is down over 30% in some cases. Paper prices have held up reasonably well considering, as mills continue to adjust supply in all grades. We do not expect paper supply disruption due to the recently announced Verso mill closures of their Duluth MN and Wisconsin Rapids WI paper mills.
Verso has announced that it is taking immediate actions to offset unprecedented market decline due to the COVID 19 pandemic and to reposition the company for future success. Verso will indefinitely idle paper mills in Duluth, MN, and Wisconsin Rapids, WI. Verso plans to idle Duluth by end of June, and the Wisconsin Rapids mill by end of July. Verso will continue to supply graphic and specialty papers in roll and sheet form at their mills in Escanaba, MI and Quinnesec, MI. Verso said it will be “exploring viable and sustainable alternatives for both mills, including restarting if market conditions improve, marketing for sale or closing permanently.”
Resolute has taken 6 months of extended downtime at their Alma QC newsprint/directory mill. Resolute will produce directory grades at their Thunder Bay ON paper mill.
China’s Ministry of Ecology and Environment approved another round of recovered paper (RCP) import quotas. Quotas were reduced by 29% compared to the two previous quotas earlier this year, are down 45% vs. 2019. This situation may improve domestic availability of RCP.
Catalyst Paper has finally recovered their order fulfillment process after a malware attack. They are producing printing and writing grades, including their coated grades, newsprint, Electraset, Electrastar, Electrabrite, and Electracal (but not Electraprime).
Evergreen Packaging has announced the release of TruSpec® Inkjet Book with ColorPRO Technology, a new digital coated matte paper developed in conjunction with HP. TruSpec Inkjet Book is certified for all HP inkjet presses.
Wood Pulp prices rose slightly in May and are 4% higher year to date in 2020. Fiber shortages have caused issues for paper producers, especially those in the West.
Currency Exchange rates vs. the USD have fluctuated this year. The Euro is currently at 1.14, up from a low of 1.07 in March. The Canadian dollar is currently at 0.74, down from a high of 0.77 in January.
US GDP forecast has been reduced to reflect a 5%+ decline for 2020.
Consumer Confidence Index: Following two months of COVID 19 pandemic induced “free fall” in the index, the CCI has shown improvement in the past month.
Paper Grade Review
Coated grades – North American coated paper mills are currently operating at very low shipments to capacity ratios, less than 70% of available capacity. GCW demand is down 20% YTD, and CFS demand is down 14% YTD. Mills are shutting down coated machines both temporarily and permanently in some cases to regulate supply. The Verso Wisconsin Rapids mill closure will remove 18% of the available CFS capacity in North America.
Uncoated freesheet grades (UFS) – UFS is typically a stable grade segment even during recessions. This is due, in large part, to school and office uses of cut-sized sheets. The COVID-19 pandemic has seen offices and schools close world-wide, which has had a devastating impact to the UFS market demand.
Uncoated groundwood grades (UGW including SC) – The coronavirus pandemic has forced brick-and-mortar businesses to temporarily close, thereby forcing advertisers to temporarily cancel print and paper orders. Don’t expect huge price drops, as mills are taking downtime to regulate supply. The Verso Duluth closure will eliminate about 11% of the supercalendered capacity available in North America. We should see some return to UGW grade demand as stores re-open and consumers start to consume again.
Newsprint grades – Newsprint operating rates fell to 71% in recent months, and offshore exports have dried up. Some temporary curtailments, implemented due to the pandemic, will likely become permanent in the future. Newsprint producers in Canada have enjoyed a favorable exchange rate by selling into the US, but with the loonie currently gaining ground on the USD, there is increased pressure on Canadian producers to find ways to increase prices in the future.
Quad is closely monitoring the latest information from the Centers for Disease Control and Prevention (CDC) and the World Health Organization (WHO) about COVID-19. We are proactively taking measures to protect our employees’ well-being and maintain business continuity for Quad and our clients. During this time and as always, Quad/Paper Services is closely monitoring paper market dynamics, mill announcements and risk assessments. We are working closely with each of our mill partners to ensure continuity of paper supply during this crisis. For more information, please see our COVID-19 response.