Paper Industry Perspective
3rd Quarter 2014
Machine shutdowns accelerate
By Jesse Marzouk
Amid continued weak
demand for coated paper in
North America, and even
less for the coated mechanical (CM) segment of the
market, a number of producers announced mill and
machine closures in the third
quarter of 2014. FutureMark
Paper, which operated a
150,000-ton-per-year recycled coated mill near Chicago,
stopped producing paper in Sep-
tember. More recently, Verso Pa-
per announced the closure of its
400,000-ton CM and specialty mill
in Bucksport, Maine, by the end of
November. Additionally, Resolute
Forest Products announced the
shuttering of its 275,000-ton-per-year Laurentide, Quebec, mill,
which produced supercalendered
(SC) paper. SC paper competes
with CM paper and has been partly responsible for price declines in
CM. SC, which is a cheaper alternative to CM, has taken market
share away from CM in recent
years.
The combined capacity cuts of
725,000 tons represent more than
13% of the combined North
American capacity for CM and SC.
It is on the backs of these closures
that some producers have already
announced price increases, including rises ranging from $20 to $60
per ton for CM beginning November 1. It is likely that the final price
hike will be on the lower end of the
announced increases, with the
possibility of a further increase in
2015. Even if the eventual increase comes in at the higher end
of the range, CM producers still
would be selling their paper for
less than they were at the beginning of 2013. Since the beginning
of 2013, CM prices have fallen
between $100 to $120 per ton,
depending on grade. The declines
were the result of less demand for
CM amid weak sales of magazines and competition from SC.
While the price hikes will alleviate some pressure, producers
will be careful not to raise prices
too quickly, which likely would
result in increased imports from
overseas, especially Europe.
Europe maintains a large number
of SC mills, which historically have
exported product to the U.S. With
the recent declines in value of the
euro against the U.S. dollar, shipping to the U.S. has gained attractiveness. Recent U.S. dollar
strength is just another obstacle
facing printing and writing paper
mills in the U.S., at a time when
demand declines for certain
grades is accelerating.
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.