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Paper Market Update May, 2021

May 10, 2021

Paper markets are much tighter than they were a year ago. Paper producers have extended order lead times and higher operating rates. Inventories are low. Mill costs have skyrocketed, including: pulp (up 36%), corn to make starch used in paper making (up 80%), freight (up 45%), and fuel (up 40%). Mills have increased prices on most every paper grade this year. This includes newsprint, all uncoated groundwood grades (SC, hi-brites), all coated grades, and uncoated freesheet. Industry analysts fully expect further price increases to be announced by paper producers, for all grades of printing and writing papers.

Recent News

Stora Enso will permanently close pulp and paper production at its Kvarnsveden Mill in Sweden and Veitsiluoto Mill in Finland. The planned closures will take place in Q3 2021 The Kvarnsveden m ill in Borlänge, Sweden has two paper machines with a combined annual capacity of 565 000 tonnes of supercalendered (SC) and improved newsprint grades. The Veitsiluoto m ill in Kemi, Finland has a total capacity of 7900 00 tonnes /yr on three paper machines. Two machines produce uncoated freesheet and one makes coated grades. The mill also has an integrated chemical pulp mill, groundwood mill and a sheeting plant. (source: press release)

UPM‘s Q1 profit reported up to €227M from €192M a year ago as pulp demand and prices are up. Sales decreased by 2% to EUR 2,234 million due to lower prices of graphic papers and currency exchange. (source: press release)

Paper Excellence is exploring a deal to acquire U.S. rival Domtar Corp. Domtar rose as much as 21% in after market trading. (source: Bloomberg web)

Resolute Forest Products preliminary 1Q 2021 results: sales up by $184 million year on year to $873 million. Adjusted EBITDA of $221 million. (source: press release)

Market Influencers

Wood Pulp – prices continue to rise beyond historical high levels. Up 36% year to date. Non-integrated paper mills, which use dried pulp purchased on the open market as the starting point for paper making, are forced to raise prices to recover these costs. Source: Fastmarkets RISI

Fuel and Energy costs continue to rise, while crude oil prices are over 200% higher than at this time last year. Diesel fuel costs are 40% higher vs. mid 2020 rates. Source: Web

National Load to Truck Ratio data shows April at about 5 loads to 1 truck available…down from over 7 to 1 in February. The ratio is highest in the south and west. Freight rates have also soared as a result. Source: DAT Freight & Analytics

Paper Grade Review

Coated grades – Coated groundwood (CGW) grade prices went up by $2.00/cwt in March, with another $2.00/cwt increase announced by the mills for May…which will likely be implemented in July. Coated freesheet (CFS) roll prices increased by $1.50/cwt in January and by another $1.50/cwt in April. There’s already a third increase announced by the CFS mills for $2.00/cwt in June, but this too will likely be implemented in July. Mills have full order books for several months, with low inventories and mill operating rates over 100% for all coated grades.

Uncoated freesheet grades (UFS) – UFS prices increased by $3.00/cwt in March. With mill operating rates in the mid 90% range, demand showing significant improvement, and significant cost inflation mostly absorbing the March price increase, producers will seek another price increase this year for UFS grades. UFS production capacity has been sufficiently removed as to bring mill operating rates up to 98% in March, with an industry projection of 95% for the remainder of this year.

Uncoated groundwood grades (UGW including SC) – SC prices increased by the announced $40/ton in April, while machine finish high brightness grade prices increased by $50/ton in May. Mill operating rates were 95% in March, up from 77% in February as demand increased by 19% (March vs February 2021). Shipments have nearly recovered to pre-pandemic levels, and industry analysts project a 13% increase in demand for UGW grades in 2021. Producers have announced another $40/ton price increase for SC grades in June.

Newsprint grades – After raising prices in January and February, by $20/tonne each month (45g), mills have increased prices again in April and May, by $25/tonne in each month (45g). In March, newsprint mill operating rates were 96% and shipments were at their highest level since last spring. Inventories are very low, and industry analysts are projecting operating rates above 95% for the remainder of this year. With that will likely come further price increases. Expect another newsprint price increase in Q3.

Sheet-fed and Digital grades – Almost non-existent inventories remains the key topic for these grades, as mills have depleted their inventories and demand has picked up. Order lead times have stretched considerably, and most mills are requiring orders be placed 10 weeks out, with order LDCs that have lengthened to 4 to 6 weeks depending upon the brand. Prices increased in April/May this year, with another increase announced for mid-year.