Musical chairs at NewPage Corp. have put the spotlight on coated papers. In case you missed it, on June 15th, NewPage (North America’s largest coated paper producer) announced that E. Thomas Curley resigned as president and CEO, Mark A. Suwyn resigned as chairman, and Michael Edicola resigned as vice president, human resources
. While a search is underway for a new CEO, Robert L. Nardelli will serve as a director and non-executive chairman of the board. Nardelli is currently the CEO of Cerberus Operating and Advisory Company, an affiliate of Cerberus Capital Management L.P., the controlling stockholder of NewPage.
Industry analysts and observers have speculated about the reasons for the change and its implications for the industry. On a June 15 conference call, little was explained about the reasons for the departures, but Nardelli said that the day-to-day business was in good hands and no strategic change was anticipated. NewPage has had some difficulties after taking on significant debt when it purchased the assets of Stora Enso North America in 2007, and the economy has not helped. In 2008, coated paper demand declined 13% and, in 2009, coated paper demand suffered a further decline of 22% as the trend toward less printing and paper consumption was exacerbated by the Great Recession.
So now that the spotlight is on coated paper, what are we seeing in the market? Coated paper declined more than any other sector during the recession, but it is also experiencing the greatest bounce-back as advertising and direct mail expenditures that were cut during the recessiont are now rebounding. The Pulp and Paper Products Council reports overall North American printing and writing paper demand is up 7.3% year-to-date through April, with coated freesheet up 22% and coated mechanical up 9%.
What, then, lies ahead? Coated paper prices are still below year-ago levels, but are edging up. During the June 15 conference call, NewPage said that coated paper price increases announced for the second quarter and third quarter of 2010 are being implemented. The growth in demand, coupled with capacity reduction, has created a capacity shortfall, especially for coated freesheet, which experienced operating rates of 98% in April and 93% year-to-date. Coated mechanical has lower operating rates, but has greater cost pressures—most coated mechanical mills are non-integrated, i.e. they need to buy pulp, and pulp prices have risen sharply (up more than 50% from year ago levels).
Often, when markets tighten in North America and prices rise, imports help to balance the market. However, the anti-dumping and countervailing duties imposed on China and Indonesia will limit imports from Asia (for more on the coated paper case, "Coated Paper Controversy : Paper Case Cuts Both Ways
"), and the high pulp prices will put pressure on the European mills, which are largely non-integrated. The weak Euro would offset this somewhat, but pulp prices are quoted in dollars so exchange rates will provide little help to European exporters to North America. Further, rising oil prices will impact imports globally.
We’ll keep an eye on the coated paper case, pulp prices, oil prices and exchange rates.