Paper Industry Perspective
3rd Quarter 2012
Tissue Capacity Coming
By Jesse Marzouk
Prices for most types of printing and writing (P&W) paper held
steady in the third quarter of 2012,
although demand continues to
remain weak. Year-over-year
through August 2012, all four
types of P&W paper
(coated mechanical,
uncoated mechanical,
coated freesheet , and
uncoated freesheet)
saw demand declines
in North America; the
smallest decline was in
coated mechanical
(3.6%), while the largest was in uncoated
mechanical (16.3%).
Looking ahead to
the fourth quarter, most P&W
paper prices should move little,
with the exception of coated mechanical grades. Coated mechanical grades should see an increase
as capacity shuts by major players, including Resolute Forest
Products and Verso Paper, tightened the market. These shuts
accounted for approximately 300,000 tons on an annual basis,
or 8% of North American demand
for this grade.
One area that Hilco does not
typically focus on in its quarterly
forestry perspectives is the tissue market. The main reason is
the relatively small size of the
tissue market compared to the
market for P&W paper. Because
of the impending capacity additions in the U.S. in the tissue
market, however, it is worth discussing the potential impact.
Between capacity additions
in 2012 and those expected in 2013, the U.S. should see an
increase in supply of approximately 600,000 tons, or 7% of
total North American tissue demand. The majority of the capacity additions are in the private-label market, which has benefitted from a trade down from
names brands to private label
brands. While the private-label
market will likely continue to take
market share, these capacity
additions will result in a softening
of private-label tissue prices,
capacity shuts of older, less
efficient machines, or both.
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.