Three Stories for 2010
In recent years, the big story in paper has been more than a decade of low profitability, followed by consolidation and capacity rationalization. This resulted in higher prices, despite declining demand. Even with the collapse in demand during the Great Recession, paper prices held up reasonably well in 2009.
For 2010, three big stories will be the end of the recession, the end of black liquor credits, and the proposed anti-dumping and countervailing duties on coated papers from China and Indonesia.
• The key question about the end of the recession is: How much will demand bounce back? We’ll examine this in more depth as the year unfolds, but basically, we should expect a return to the pre-recession trend, not the pre-recession level of demand.
Prior to the recession, North American paper consumption was flat to slightly negative. The two-year decline in 2008-09 was about 27%, and we don’t expect to get that back. More likely, we’ll see a return to a flat or slightly declining trend from this new, lower level. We may get a slight bounce of a few percent as inventories are balanced and some delayed print advertising and promotion kicks in, but that’s about all.
• As a result of legislation designed to encourage the use of biofuels, U.S. pulp and paper mills got a whopping $8 billion subsidy in 2009 for burning black liquor, a byproduct of the pulping process that the mills have been burning for decades. While desperately needed by the mills in the face of collapsing demand, this was certainly not the intent of the lawmakers. The subsidy ended at year end, and mills will be under severe profit pressures once again.
• In September, 2009, NewPage, Sappi, Appleton Coated and the United Steelworks filed a petition with the International Trade Commission and the Department of Commerce, citing unfair competition and illegal subsidies on coated papers from Indonesia and China. While there is no doubt that imports have gained share in the U.S., resulting in mill closures and lost jobs, previous cases have failed.
There are two schools of thought on this. One view is that we can’t allow unfair competition to cause mill closures; we need a level playing field. The other view is that if the Chinese want to subsidize our printers with low-priced imports, let them. The fear is that if we don’t, U.S printers will not be competitive and will lose share to offshore printers. We’ll be watching this, but one thing is clear: if this case is successful, we can expect fewer imports and higher prices.