Pulp and Paper Perspective 4th Quarter 2017

Prices for most grades of printing and writing paper increased in the fourth quarter of 2017 on the back of machine and mill closures along with the impact of ongoing trade cases and currency exchange rates.

As has been the case for at least the last decade, prices for printing and writing paper have increased only in response to the removal of capacity and/or the enactment of duties. With regards to the coated paper market, this trend continued in the quarter after the closure of West Linn Paper Company’s mill in Oregon and Appleton Coated’s Mill in Wisconsin removed approximately 14% of North American capacity of coated freesheet. Prices for coated grades increased between $15 and $25 per ton in the fourth quarter of 2017 and into January 2018, as some customers had price protection in place until 2018.

Prices for newsprint and uncoated mechanical paper climbed over the last few months, as capacity reductions and duties supported the market. In October 2017, North Pacific Paper Company (NORPAC) idled one of its machines in Longview, Washington, eliminating approximately 250,000 tonnes of newsprint and uncoated mechanical capacity. Additionally, in January 2018, the U.S. Department of Commerce assessed preliminary countervailing duties between 4.42% and 9.93% on imports of uncoated groundwood paper from Canadian producers based on a trade case filed by NORPAC in 2017. Prices for groundwood paper have increased between $35 and $45 per tonne since October 2017.

Prices for printing and writing paper could hold stronger in 2018 than previously anticipated by analysts due to many factors, including a stronger economy, capacity reductions, import duties, and the recent weakness in the U.S. dollar. The strength of the U.S. dollar generally exhibited from 2014 to 2017 attracted imports and held prices down. With the recent weakening of the dollar against almost all major currencies, however, there is less incentive to ship into the U.S. The euro, for instance, has been trading near $1.25 (U.S.); therefore, the level of printing and writing paper imports, many of which are sourced from Europe, likely will be reduced compared to when the euro held between $1.05 and $1.15, where it had traded.

 Jesse Marzouk is a vice president and forestry products specialist. He has appraised numerous U.S. and Canadian pulp, paper, and lumberrelated 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.