The
Dead Tree Edition blog recently cited a Webinar in which
Reel Time Report editor Verle Sutton said that paper prices could be ready for a fall. Declining demand is the issue. Sutton argues that the rhetoric from the mills and the bullish forecasts from RISI are too optimistic.
This is a complex issue, so let’s look a little more closely.
Operating rates for coated mechanical and coated woodfree were in the 90-91 percent range through the first 10 months of the year, as demand declined around 5 percent, depending on the grade. While not especially robust, these rates were sufficient for prices to be increased 8-10 percent for some grades. Industry sources suggest that prices are easing now as demand hits a seasonal downturn.
So, the question is: Will prices remain at current levels, rebound next year to previous highs, or fall further?
The issue, of course, is supply and demand. While some may disagree on the precise numbers, there is little doubt that demand will decline next year. The supply side is much more complex.
Faced with falling prices, will coated mills chase prices lower? Or, will they take out capacity to balance supply and demand? Uncoated freesheet producers have reduced capacity, balanced supply and demand, and maintained prices.
Coated prices have been hurt by imports, which, of course, are part of the supply side of the equation. North American coated markets were impacted first by low-priced imports from China, but anti-dumping duties have curtailed that. Then, they were impacted by low-priced imports from Europe as European producers were losing business to low-priced imports from China, and needed to replace lost volume.
But now, Europe has also imposed duties. These factors, plus a weak U.S. dollar, have helped make the North American market less vulnerable to imports.
Looking ahead, what’s the answer? Sutton asserted that, “Coated prices will decline until capacity is removed.” Simply put, RISI is more bullish than Sutton because RISI believes that capacity will, in fact, be removed.
But, will capacity be removed? No one knows for sure. Coated mills have tended to have less discipline then the uncoated freesheet mills. Yet, with U.S. coated mills still under cost pressures from pulp and chemicals, and with margins where they are, coated paper producers may not have a choice—they may have to reduce capacity.
Two cautions:
- First, this overview simplifies the picture. There is not one coated paper and one coated paper market. We have freesheet and mechanical (or groundwood), sheets and rolls, lightweight and heavyweight, commercial printing and publication markets.
- Second, there is a wild card. If the Euro fails, the U.S. dollar will be relatively strong, and as European economies collapse with the Euro, imports are likely to rise as U.S. demand declines further as collateral damage from the European collapse.
Stay tuned!
