Paper Industry Perspective 1st Quarter 2015

Coated prices move up

By Jesse Marzouk

Paper Perspectives Graph Q1 2015Opposing forces shaped the North American graphic paper markets in the first quarter of 2015. On the back of Verso’s acquisition of NewPage, and the 13% reduction of North American capacity for coated mechanical (CM) and supercalendered (SC) paper, prices for CM, SC, and coated freesheet increased by $10 to $20 per ton, depending on grade. More increases are expected as customers that had price protection during the quarter were able to hold previous prices.

On the other hand, prices for newsprint and uncoated freesheet (UFS) declined during the quarter due to increased competition. UFS producers have been facing increased competition from imports over the last 18 months after 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, combined with the strength of the U.S. dollar, approximately half of these increases receded after attracting overseas imports. Subsequently, certain UFS producers in the U.S. filed a trade case with the U.S. International Trade Commission (USITC). The USITC has not yet made a preliminary ruling on the case. The strength of the U.S. dollar is also impacting newsprint prices in North America, although in a slightly different way. Over the last five years, North American newsprint producers have exported approximately 30% of production. With the recent strength of the U.S. dollar, however, North American mills are facing increased competition in export markets around the globe. The sharp decline of the Russian ruble has placed downward pressure on newsprint prices, as a large Russian mill has become more active in the export market.

A similar fate is likely for producers of CM, which are expected to benefit from higher prices in 2015; however, they almost certainly will be less than prices were a few years earlier. Producers are hesitant to raise prices too much from fear of substitution from other grades and further demand destruction. To compound the matter for North American producers, the strength of the U.S. dollar against the euro and other currencies likely will attract imports into a market that is already weak. Specifically for producers of CM and SC, Europe is a significant producer of SC and is expected to take advantage of higher prices in North America in 2015.

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.