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Paper Market Update June, 2021

June 10, 2021

Paper markets are even tighter than they were last month. Coated paper producers are over-sold now into September. Price increases from the mills have continued for all grades of paper . Mills are rejecting paper orders for the balance of this year, that are not within their forecasted amounts. This is especially true for coated paper, as producers have over-committed and are now turning back orders to match their reduced production capacity. As a caveat…“LDC” used to mean “Last Date to Change” paper orders with the mills. This included paper changes or quantity increases. With the current paper market pushing buyers to confirm paper earlier and providing less flexibility, the LDC has changed industry-wide to now mean the “Last Date to CANCEL or REDUCE” orders with the mills…no more increases or paper changes allowed by the mills. This is just one example of prevailing mill practices.

Recent News

Paper Excellence, a global diversified manufacturer of pulp and specialty, printing, writing, and packaging papers will acquire all of the issued and outstanding shares of Domtar (NYSE:UFS) for $55.50 per share, in cash. Upon closing the transaction in the second half of 2021, Paper Excellence intends to continue the operations of Domtar as a stand-alone business entity. (source: press release)

Market Influencers

  • Mill costs have skyrocketed, including pulp (up 40%), corn to make starch used in paper making (up 80%), freight (up 45%), and fuel (up 40%).
  • Wood Pulp – prices have risen 40% this year.
  • Fuel and Energy costs are on the rise. Crude oil prices are 128% higher vs. a year ago.
  • National Load-to-Truck Ratio data currently shows the national load-to-truck ratio at 8:1. A typical ratio is between 2 and 3 loads per truck available. Freight costs have increased exponentially. Source: DAT Freight & Analytics

Paper Grade Review

Coated grades – All coated paper markets have tightened significantly…with mills sold out through September and prices still rising. This includes coated groundwood #4s and #5s as well as coated freesheet in rolls and sheets. While YTD demand is down 19% for CFS and down 24% for CGW grades, enough capacity has been removed in the past two years to cause a shortage of supply. 28% of CFS capacity has been removed, and 38% of CGW capacity removed since 2019. CGW market prices have increased by $6.00/cwt thus far in 2021, while CFS prices have increased by $5.00/cwt. If mills remain oversold, expect further price increases in 2021 as mill and freight costs continue to escalate.

Uncoated freesheet grades (UFS) – Although demand is down 7% YTD, capacity is down by 15% vs last year and so a supply shortage has occurred for UFS offset and opaque grades. COVID19 related demand drop-off in 2020 resulted in producers removing more than 1 million tons/year of UFS grade capacity from the market…shutting paper machines and converting some to other non-printing grades. With mill operating rates projected to remain between 93% and 96% for the balance of 2021, this market will remain tight as demand recovery continues. UFS paper grades have seen a $6.00/cwt price increase thus far in 2021. A conservative view would anticipate additional increases later this year, but this is an unpredictable market right now.

Uncoated groundwood grades (UGW including SC) – UGW SCA (SCA+, SCA++) grades are a lower cost alternative to coated groundwood #5 grades; thus, oversold coated markets and price inflation this year has caused some to migrate away from CGW to SCA grades for their paper needs. Despite operating rates not as strong as the other paper markets, price increases for coated paper, newsprint and uncoated freesheet are pulling UGW prices up too. UGW SC paper prices have increased by $4.00/cwt and UGW machine finish high brightness grades (MF-HB) have increased by $5.50/cwt thus far this year through July. With coated mills turning away orders, unexpected but necessary grade migrations to UGW grades will bolster this market and could support additional increases this year.

Newsprint grades – Same story with the newsprint market…demand is down 19% YTD, but 35% of the newsprint capacity was removed since last year. Fastmarkets RISI is projecting a 3.3% decline in demand for 2021 total year, as the remainder of 2021 comparisons will be favorable when compared to the dismal situation COVID19 caused starting in April of 2020. Operating rates are at 94% at the mills, which supports price increases that have been announced and implemented by producers. Newsprint prices have increased by $140 per tonne (for 27.7 lb 45g) in 2021, through August 1st. This brings newsprint prices almost back up to the 2018 peak caused by Canadian duties imposed by the U.S. government. US West and US East newsprint prices have been equalized, since there is now so little newsprint production in the West.

Sheet-fed and Digital grades – Depleted inventories remains the key topic for these grades, as mills are not able to replenish due to increased new orders. Order lead times have increased considerably, as mills are now requiring orders be placed at least 12 weeks out, with order LDCs that have lengthened to 5 or 6 weeks depending upon the brand. Prices increased in April/May this year, with another increase announced for July.