Uncoated Free Sheet: Second Round of Price Increases Taking Shape
On top of the reduced capacity profile, U.S. net imports have declined sharply in recent months given the surge in non-US uncoated prices, further tightening the US market and providing increased export optionality for the North American producers.
Jan. 12, 2018 - According to trade sources, Domtar has informed customers that it is raising prices on offset rolls and sheets by $40 per ton, effective with shipments on February 12th, said Chip Dillon, packaging and forest products analyst at Vertical Research Partners.
Dillon offered the following insight on pricing in the uncoated free sheet (UFS) market in the U.S.:
“We believe [Domtar] is the first major player to work on a second round of price increases after the partially-successful price increase initiative that began in October. To be clear, the grades covered by this announcement cover about a third of Domtar's and the North American industry's uncoated free sheet market. That said, we would expect price increase initiatives spreading to the largest category, cut-size (or copy paper), in coming days and weeks. In fact, a major importer of white paper into the U.S., Portugal's Navigator, last week announced a similar (about $40/ton) price increase for January for cut-size grades.
“Three smaller players in white papers, Verso, Twin Rivers, and Norpac, in recent weeks have announced $40/ton price increases on various uncoated grades to be implemented in January and February,” Dillon pointed out.
Why Are Prices Moving Up?
“With Flambeau's announcement that it will close what amounts to another 1% of North American uncoated capacity this month, we now expect US capacity to fall about 4.5% for 2018 (versus 2017), with another 3.5% coming out in 2019. Again, these declines are based on (1) actual conversion (IP, PKG) and shutdown (GLT, Georgia-Pacific, Flambeau) announcements in recent months, plus (2) assumed 0.3% annual capacity 'creep',” Dillon said.
“On top of the reduced capacity profile, U.S. net imports have declined sharply in recent months given the surge in non-U.S. uncoated prices, further tightening the U.S. market and providing increased export optionality for the North American producers. Keep in mind that most uncoated free sheet paper produced outside of North America is made from purchased (rather than self-produced backward-integrated) pulp and with market pulp prices up 20%-40% over the past year or so, either non-U.S. prices had to rise or there would be much, much less paper in the world — and certainly less than demand! For many months, we have been arguing that U.S. prices simply have to rise as long as market pulp and, therefore, non-U.S. uncoated prices remain elevated; if not, then the North American producers would simply increasingly bypass their domestic customers for the much better-paying foreign ones."
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SOURCE: Vertical Research Partners