Prices Heading Up for UFS, Containerboard and Paperboard Grades

Jan. 12, 2010 - Uncoated Freesheet. With pulp and other input costs on the rise, speculation is growing about the potential for a price hike initiative in early March for uncoated freesheet (UFS), according to analysts at Deutsche Bank.

November shipment data shows signs of improvement: flat year-to-year, YTD -12.1% y/y, noted Mark Wilde, senior analyst at Deutsche Bank covering the Paper & Forest Products sector.

International Paper and Domtar recently announced 800,000 tpy of permanent capacity closures by mid-2010, representing 7% of NA UFS capacity.

IP recently closed its 223,000 tpy PM 6 machine at its Franklin, Virginia mill — a key mill for production of envelope grades.

List prices remained flat in December for both 50-lb offset rolls and 20-lb repro bond, Wilde said.

Envelope paper prices rose another $5 in December, following a $25-30/ton gain in November, he added.

Prospects for the January price hike are encouraging. “We think at least $20-30/ton of the hike is likely to be 'recognized' in January, with the balance in February and March,” Wilde said.

With the expiration of Black Liquor credits, mills must shift back to traditional economics in making decisions about production and sales, Wilde pointed out.

Surging OCC prices are adding a cost thrust to the current price hike initiatives. OCC is up another $30-40/ton in recent weeks and still rising, Wilde notes, driven in part by increased use and strong demand in China.

“On the volume side, we're receiving a number of reports suggesting a solid y/y jump in box volumes in December,” Wilde said. “Some of the strong comps are driven by very weak numbers in late 2008, but some of the strength also reflects improvement in manufacturing sector,” he said

“Reports suggest that most containerboard mills have strong order backlogs driven by strong export demand and some pre-buying before the price increase,” Wilde said.

Recycled Board
Coated Recycled Paperboard (CRB) and Uncoated Recycled Paperboard (URB) producers announced another round of price hikes. All the major CRB producers (Rock Tenn, Graphic Packaging, Cascades, Strathcona, and PaperWorks announced $40-45/ton price hike for shipments, effective early January.

Faced with surging OCC costs, Sonoco has just announced a $50/ton hike on all URB grades as well as an accompanying 4.5% hike on converted products, and The Newark Group just announced a $40/ton increase on all coated grades of recycled paperboard, effective with shipments on or after February 1.

The CRB initiative comes on the back of stronger demand (order backlogs = 155,000 tons, +60% y/y and +50% since mid-summer), higher input costs and lower inventories throughout the supply chain, Deutsche Bank said.

CRB operating rate in November 2009 was 99% (May: 89%).

The list price of CRB in December 2009 was $750-770/ton.

SOURCE: Deutsche Bank

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