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Paper Market Update October 2019

October 10, 2019

Not much has changed in the paper markets since last month’s report. Paper is readily available with normal order lead times, and markets continue to struggle with surplus supply. Recent industry price indices have started to show transaction (spot) price slippage on newsprint and uncoated freesheet grades. Expect mill closures and shuts to be announced for some grades as we enter 2020.

Recent News

ND Paper has announced future strategic capital equipment upgrades to their pulp dryer and all three paper machines at their Rumford ME mill. This will enhance paper quality and long-term viability of the mill. Additionally, ND will convert PM-B25 at their Biron WI mill from LWC papers to recycled linerboard and corrugating medium in Q1 2020. (source: press release)

UPM plans to permanently close an SC paper machine in Rauma, Finland and sell its Chapelle newsprint mill in Grand-Couronne, France. If completed, the actions would result in a reduction of 265,000 tonnes of SC capacity and 240,000 tonnes of newsprint capacity in UPM’s European portfolio. (source: press release)

Domtar announced that it will permanently shut two paper machines, one at their Ashdown, AR mill and one at the Port Huron, MI mill. These shuts will eliminate 204,000 tons/yr of uncoated freesheet paper capacity. (source: press release)

Quebec’s government will provide a C$50M annual boost to print media amid the rise of digital competitors; retroactive to Jan. 1 and valid through 2024. Newspapers may claim refundable tax credit equal to 35% of wages of newsroom employees earning up to C$75,000/year. (source: Canadian press)

The sale of the Flambeau River Papers mill to newly formed company Element Ventures could not be finalized and the assets of the mill will now be marketed as a liquidation sale. (source: from the web)

Market Drivers

Mill costs are down in 2019, including energy costs and wood pulp prices…which have fallen 21% this year and have returned to 2017 price levels for wood pulp.

The euro is moving closer to par with the U.S. dollar, down 6% from last year.

The Canadian dollar is slowly gaining on the U.S. dollar and a Reuters poll predicts that it will continue to do so over the coming year.

Book sales are up 7% year to date in 2019, or $8 billion. This includes printed, audio, and Ebooks. (source: Assoc. of American Publishers)

U.S. National load to truck ratio was unchanged in September, at 2.4 loads to 1 truck posted. Diesel prices have moved up following the recent attack on Saudi oil fields.

Paper Grade Review

Coated grades – The West Linn CFS mill that closed in 2017 has restarted as Willamette Falls Paper. Two paper machines (PM) have started and the third PM will begin production in October. Pending seasonality changes could force coated paper producers to either lower prices or take out more capacity as we near year end. Prices have been relatively static this year for coated grades, but price pressure will intensify as we begin 2020. If current trends continue, mills will have to shut large amounts of capacity to right size.

Uncoated freesheet grades (UFS) – UFS demand, in the U.S., has dropped off over the past two months. 5% YTD, but a double digit drop in August alone. UFS exports are down, and imports are up, causing a large U.S. net trade deficit for these grades. As a result of these two stats, UFS operating rates are lower than they were in 2018. 88% YTD vs. 91% 2018 YTD.

Uncoated groundwood grades (UGW including SC) – According to RISI Paper Trader, demand for UGW grades is in historic decline in 2019. This is due to several factors, including: the collapse of newspaper inserts and printed directories, grade migrations to newsprint, and lower sales of massmarket paperback books. This trend will force UGW producers to make large capacity closures if market stability is to be restored.

Newsprint grades – Mill operating rates are at “recessionary” lows this year, while newsprint inventories are higher than they were last year. Newsprint producers are taking some downtime to manage supply and surplus inventories,and newsprint prices have remained relatively stable in 2019, until just recently, when industry price indices showed downward movement.