Paper Industry Perspective
2nd Quarter 2013
Uncoated freesheet struggles in Q2
By Jesse Marzouk
North American demand for
uncoated freesheet , primarily
used for office paper, commercial
printing, business forms and envelopes, has dropped more sharply
than anticipated in 2013 and has
weighed on prices. Total North
American shipments of uncoated
freesheet through June 2013 are
down 4.4% year over year.
This is slightly larger than decreases experienced over the
last few years. As a result,
prices for cutsize (office paper)
and uncoated freesheet rolls,
which are the two most common types of uncoated freesheet, have seen prices fall $30
to $40 per ton since the beginning of 2013.
In addition to declining demand, one more recent headwind
that producers of uncoated freesheet have faced is the presence
of coated producers in the market.
As demand has softened for coated freesheet, some mills have
produced uncoated freesheet as
margins are higher in the space.
Although Boise has announced the closure of two smaller
uncoated freesheet lines at its
International Falls, Minnesota
facility, the market will need larger
closures or market related down-time in the second half of 2013 to
balance the market.
Switching to other grades,price increases of $40 to $50 per
ton have been announced for
supercalendered (SC) paper as
well as coated freesheet and coated mechanical. SC price increases are almost certain to go through
as demand has increased approximately 10% thus far in 2013. SC
continues to take share from coated mechanical as magazines and
catalogs transition towards this
cheaper alternative. Major consumers of SC that agreed to
switch some consumption to SC in
2013 will likely have price protection against the increases until
2014. Coated freesheet has the
next best chance of achieving price increases as demand has
remained stronger than most anticipated thus far in 2013. Coated
mechanical will likely need the
closure of a major machine to
achieve any price increases as SC
steals market share and operating
rates for North American mills
hover in mid 80% range.
Jesse 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.