Paper Market Update March 2019

March 8, 2019

2017 was the year of rising pulp and mill costs, falling profits, and huge capacity adjustments by paper producers. 2018 was the year of strong paper markets and double digit price increases for all grades. 2019 seems to be the year of weaker paper markets when compared to 2018…with declines in demand accelerating for most grades and prices withstanding buyer pressures thus far. Uncoated freesheet supply adjusts downward by 8% annually as GP closes the Port Hudson mill this month. Most paper grades are readily available with shorter lead times.

Recent News

  • White Birch is shutting the Bear Island newsprint mill, effective immediately. This removes 240,000 metric tons of annual newsprint capacity in North America.
  • ND Paper 1H-2019 results: sales up 18.2% from year ago; Sino-US trade war has created ‘conservative sentiment’, slowing demand.
  • Verso Corporation 4Q-2018 results: net sales up 9% from year ago to $695 million
  • Veritiv reports 4Q-2018 net income of US$9.3M, down from US$12.3M a year ago; 2018 net loss widens to US$15.7M
  • China‘s slower growth, and new trade restrictions add to uncertainty within pulp markets.

Market Drivers

  • Wood pulp prices decreased another $25 – $30/tonne in February, down 4% ytd in 2019. Fiber costs represent between 14% and 26% of total mill production costs of paper.
  • Paper producers have focused on profitable grades, forcing supply decisions to be made quickly with immediate impact to the market.
  • Forecasts for paper end uses have been revised downward for 2019. See data in the table to the right. (source: RISI Paper Trader)

Paper Grade Review

  • Coated – The advent of 2019 brought lower demand, lower mill operating rates, increasing mill inventories, and static prices in the coated paper markets. RISI continues to forecast weaker demand, but flat prices for 2019 for all coated grades of paper. Uncertainty exists regarding mill continuity if prices begin to fall. There are several conversions from coated paper to alternative products at mills in the U.S. and in Europe.
  • Uncoated freesheet (UFS) – GP announced they will close their UFS mill in LA in March, removing 8% of the N.A. UFS capacity. Producers quickly announced a $3/cwt price increase on UFS grades effective March 1, 2019. RISI is forecasting a relatively balanced UFS market, accompanied by stable pricing after the March increase, and for the remainder of 2019.
  • Uncoated groundwood (UGW including SC) – According to RISI data, the UGW market is starting 2019 with an upward spike in SC demand (relative to past declines), but a big drop in demand for MF grades. Super-bright UGW alternative grades will see a boost from the UFS market tightness and price increase. RISI forecasts an overall 6% drop in demand for UGW grades in 2019, with UGW prices remaining flat.
  • Newsprint – Newsprint prices were stable in February, as offshore exports rose significantly to offset demand declines in North America. According to RISI, weak operating rates and high inventories in January were due in part to seasonality, but downward pressure on U.S. prices is building and RISI is now forecasting 2019 declines in both demand (11%) and pricing (2%) for newsprint grades.