Paper Industry Perspective 2nd Quarter 2015

Trade cases may be the last resort for mills

By Jesse Marzouk

q2-perspectives-graphAmid the flood of paper product imports, North American mills have turned to another strategy to help maintain prices—trade cases.  In early 2015, certain U.S. producers of uncoated freesheet (UFS) filed a trade case against Chinese and Indonesian producers of UFS with the U.S. Department of Commerce. Preliminary duties have been implemented and imports have begun to decline.  Producers of coated mechanical (CM) paper more recently filed a trade case against Canadian producers of supercalendered (SC) paper, claiming unfair subsidies. U.S. producers of CM expected to operate at a higher level in 2015 after significant capacity cuts in 2014; however, imports from Canada and Europe and weaker-than-expected demand has led to lower operating rates.

Since 2000, North American demand for graphic paper has declined approximately 50%. North American graphic paper producers have tried a number of tactics to maintain and/or raise prices amid consistent demand declines for their products. The most often utilized tools have been the removal of capacity from the market in hopes of balancing supply and demand and consolidation to reduce competition. These measures have helped to some extent, with producers able to raise prices or keep them stable at different points throughout the last 15 years. Further consolidation in the North American graphic paper market is unlikely, however, with the top four firms controlling at least 75% of capacity for each grade. Recently, it appears as if neither consolidation nor capacity reductions have had the lasting effect that producers have desired.

Most recently, the coated paper market has undergone consolidation and capacity reductions. On the back of Verso Corp.’s acquisition of NewPage, and the 13% reduction of North American capacity for CM and SC paper in the second half of 2014, prices for CM increased $20 per ton. Prices for CM, though, are still down by around $50 per ton over the last two years. A similar fate also has befallen North American producers of UFS. U.S. producers closed approximately 10% of UFS capacity at the end of 2013. Prices for UFS rose approximately $80 per ton at the end of 2013 and the beginning of 2014. Unfortunately, these closures and the strength of the U.S. dollar attracted imports of UFS to fill some of the void left by the closed U.S. mills. As a result, UFS prices began declining again and dropped approximately $40 per ton over the last  nine months.


Jesse MarzoukJesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies involved in manufacturing and distribution. Jesse received his MBA in finance from Kellogg School of Management at Northwestern University, and has a degree in finance and accounting from Indiana University.