Pulp and Paper Perspective 1st Quarter 2018

Duties hit newsprint market

By Jesse MarzoukHVS Pulp & Paper Perspective - Q1 2018

Since 2000, North American demand for graph- ic paper has de- clined more than 50%. North Ameri- can graphic paper producers have tried a number of tactics to maintain and/or raise prices amid continual demand declines for their products. Most frequently, producers have removed capacity from the market in hopes of bal-ancing supply and demand and consolidated to reduce competi-tion. These measures have helped to some extent, with producers able to raise prices or keep them stable at different points through-out the last 18 years. Further consolidation in the North Ameri-can graphic paper market is un-likely, however, with the top four firms controlling at least 75% of capacity for each grade. Conse-quently, recent falling demand trends show that neither consoli-dation nor capacity reductions are resulting in the lasting effect that producers desire.

Amid the flood of paper product imports, North American mills have turned to another strategy to help maintain prices—trade cases. In 2015, duties were implemented against Chinese and Indonesian producers of uncoated free sheet (UFS) and Canadian producers of supercalendered (SC) paper. -

These duties had the temporary effect of raising prices and stabiliz-ing demand among U.S. produc-ers. Within approximately a year, however, prices began to fall again as the resulting demand destruc-tion from the marketplace over-whelmed the duties implemented.

A similar story is likely to play out in the newsprint and uncoated mechanical paper markets. After a trade case brought by North Pacific Paper Company, the U.S. Department of Commerce imple-mented duties in the first quarter of 2018, ranging from 4% to 32%, against imports from Canada of newsprint, high brights, book pub-lishing, and printing and writing paper, which have an annual val-ue of more than $1 billion. The producers that were hardest hit immediately announced price increases of up to $130 per tonne. The price increases only will serve to accelerate the demand decline for newsprint and the other grades affected. Eventually prices will fall and U.S. producers may be worse off than before the implementation of duties because of demand for paper will have been eliminated earlier than otherwise expected.

j_marzouk

 Jesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumberrelated 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.