Paper Industry Perspective 3rd Quarter 2014

Machine shutdowns accelerate

By Jesse Marzouk

Paper Perspectives Graph Q3 2014Amid 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 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.