Paper Markets: Producers Pushing Price Hikes as Inventories Dwindle

Dec. 4, 2009 - Capacity cuts — some temporary, some permanent — by North American paper producers are making a substantial dent in inventories, and manufacturers are now working to move prices up on most grades.

Mark Wilde, senior analyst at Deutsche Bank covering the Paper & Forest Products sector, gave the following review of various market segments:

The North American newsprint list price in November increased $20/ton to $500/mton (East). However, at $480/mton, prices in the West are lagging behind due to different price hike implementation dates. Additionally, there are numerous price hike initiatives in the coming months, though the timing and amount vary amongst producers.

Howe Sound is out with a $50/ton Dec. 1 price hike on 30-lb newsprint. Catalyst Paper deferred its $50/mton December 1 price hike to January 1.

Kruger has announced $50/mton price hike, which is to be implemented in two, $25/mton hikes beginning January. Reports suggest that a slight up-tick in demand has prompted AbitibiBowater to continue operations at its Clermont, Quebec and Liverpool, Nova Scotia mills, adding about 55-60,000 mtons of output through year-end.

List prices in November remained flat for 35-lb offset grade. October shipment data shows signs of improvement (+2.5% m/m). However, underlying demand remains weak (Oct. shipments -17.1% y/y and YTD -22.8% y/y).

Mill inventories in September were -5.4% m/m. Reports suggest AbitibiBowater plans to indefinitely close 300,000 tpy of capacity by the end of next month: 230,000 tpy at its Beaupre, Quebec mill and 70,000 tpy at its Fort Frances, Ontario mill.

[Deutsche Bank analysts] think the LWC (lightweight coated) market is tightening. Trade papers show flat prices, but trade sources suggest that North American “spot” prices are rising.

Despite a recent $20/ton ($1/cwt) price hike initiative by NewPage, Myllykoski and Verso, prices remained essentially flat in November (No. 5, 40-lb list price: $755-780/ton).

October shipment data shows signs of improvement, (+5.6% m/m, -4.3% y/y, YTD -24.2% y/y) and that the market may be stabilizing. Inventories fell 15.0% m/m. However, demand is still weak — H109 magazine ad pages fell 27.9% y/y.

NewPage has announced plans to take approx. 160,000 tons of downtime in 4Q.

CFS remains weaker than LWC. List prices in November remained essentially flat m/m with No. 3 60-lb rolls in the $905-930/ton range, and No. 3 50-lb rolls in the $960-1000/ton range.

Both domestic and offshore producers are trying to raise CFS prices in the US market on the back of improved order book from the seasonally strong printing season and higher operating rate (99% in Sept). Appleton Coated joined NewPage (# 1 producer) and Verso Paper (# 2 producer) in the $40/ton ($2/cwt) price hike on CFS grades. Global Paper Solutions and Sun Paper/Jin Rui Group have also announced similar price hikes for the US market.

However, it appears that the prices in this grade are the “softest” among all the Printing & Writing grades and may be giving back some recent gains. October preliminary shipment data shows signs of improvement (+4.2% m/m, -7.0% y/y and YTD -22.5% y/y). Inventories fell 11.2% m/m in September. Producers have taken extensive downtime (336,000 tons since 3Q08) to keep inventories under control.

Extensible multiwall sack (50lb) prices rose $40/ton in November, but other kraft paper list prices in November were flat m/m, after declining more than $100/ton from Nov'08 to May'09. Extensible sack kraft producers implemented the $40/ton price hike this fall driven by strong mill backlogs, improved demand from inventory restocking in offshore markets, surge in OCC and other input costs, and the recent weakening of the US$.

West Fraser's shutdown of the 115,000 tpy extensible sack kraft paper mill at Kitimat, British Columbia, effective Jan 31, also tightened supply and supported the price hike.

Kapstone re-announced its $50/ton price hike on unbleached kraft multiwall paper and converted kraft bag and sack grades — which have so far not gained much traction. On the export side, producers have raised prices by $50/ton in two stages this fall, with more hikes likely by year-end. Off-shore prices are also rising. Mondi and Billerud are among European producers attempting autumn price hikes. Sept shipment data shows that demand is improving: unbleached -8% y/y (YTD -22.4%), bleached +6% y/y (-21.8%).

SOURCE: Deutsche Bank (Mark Wilde)

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