US newsprint prices firm and could remain stable through Q4, including in Asia, but latest data show North American demand decline continues in September, though trend slows; in Europe, prices up but downward pressure remains despite sharp capacity cuts

Debra Garcia

LOS ANGELES , October 23, 2013 (Industry Intelligence) – Newsprint markets remain sluggish in key markets such as the U.S. and Europe due to a continuing slid in demand, although prices are firm in the U.S. and could remain so for a couple more months, according to analysts.

The latest data from the Pulp and Paper Products Council of Canada (PPPC) indicates that North American newsprint shipments were down year-over-year by 2.4% in September, but this was better than the 4.4% drop year-to-date.

“Decelerating rates of shipment decline partly reflect a favorable reference point but are still a marginal step in the right direction,” commented TD Securities Inc. in an Oct. 22 research note.

The bright spot in the market was a 17.7% year-over-year increase in September shipments from North America to offshore markets, based on the PPPC’s statistics, which were released on Oct. 21.

“We believe that demand growth in Asia (particularly India) and South America will partially offset demand declines in NA,” according to RBC Capital Markets’ Oct. 21 research report.

Through the first nine months of this year, North American newsprint shipments to Asia (excluding Japan) are up 38% year-over-year, while shipments to Latin America are down 3%, based on PPPC data, noted RBC Capital Markets.

U.S.’s edge in export markets. Favorable exchanges rates have helped U.S. newsprint producers in foreign markets, say analysts. On Oct. 22, the euro was valued at US$1.378 while the Canadian dollar was at US$0.972. Both the euro and the Canadian dollar have strengthened since the summer.

In September, exchange rates gave Canadians and Europeans selling into the U.S. 2% lower margins on sales, noted The Reel Time Report in its October edition. This also affected European sales in the Asian market, the publication reported and forecast flat pricing in Asia in the fourth quarter.

For U.S. producers, a weaker dollar has allowed them to take advantage of growing demand in Asia and some other emerging markets, resulting in higher U.S. newsprint exports, reported FOEX Indexes Inc. on Oct. 22.

However, the level of U.S. exports does not come close to offsetting an estimated 0.5 million tonnes/year of U.S. domestic consumption decline in 2013 versus 2012, and further capacity cuts are possible, FOEX noted in its report.

As previously reported, Resolute Forest Products Inc. has vowed to permanently closed one paper machine at its Baie Comeau, Quebec, newsprint mill if unions do not approve the company’s plan for a workforce reduction.

In addition, the planned acquisition of Boise Inc. by Packaging Corp. of America could speed up the ultimate conversion of Boise’s newsprint capacity in DeRidder, Louisiana, reported RBC Capital Markets.

Demand still falling, but slower. In September, North American newsprint demand fell 9.5% year-over-year, which was slower than the 10.1% decline through the first nine months versus a year ago, TD Securities reported, citing PPPC data.

Demand from newspapers represented 79% of the total in September and this was down year-over-year by 9.6% for the month and down 10.9% year-to-date, while demand from commercial printers fell 9.2% year-to-date, TD Securities indicated.

North American newsprint producers are not seeing the healthy demand from commercial printers that occurred last year. Retailers have been switching to higher-quality supercalendered papers, noted RBC Capital Markets.

Newsprint prices are relatively firm in the U.S., according to industry analysts. However, prices did slip a bit in the latest FOEX report, which showed reductions of $1.92/tonne for 30-lb. and $1.86/tonne for 27.7-lb. grades.

In Europe, FOEX reported earlier this week a drop of just US$0.06/tonne for its newsprint benchmark, with a slight push upward because of a 0.3% weakening of the euro in relation to the weighted basket of non-EMU currencies.

Earlier this month, The Reel Time Report indicated that newsprint pricing was “very firm” in the U.S. West and “firm” in the U.S. East, and both regions are currently at the same price after a $15/tonne hike in the West was implemented.

The Reel Time Report expects U.S. newsprint prices to be flat for two to four months. Its prices for September included 27.6-lb. newsprint at $625/tonne and 30-lb. newsprint at $590/tonne. Both prices were up $5/tonne from August.

TD Securities reported no change in U.S. newsprint prices from September to October and a leveling of prices in the eastern and western regions, with both at $605/tonne after the $15/tonne hike was implemented in the U.S. West in September.

The current U.S. newsprint price reflects a total drop of $35/tonne, or 5%, since the beginning of this year, reported TD Securities, which no longer expects a price hike in the East in 2013 but predicts one in second-half 2014, with additional ‘supply rationalization.’

Capacity closures not enough. But closing North American newsprint capacity has not occurred as rapidly as it should, possibly delayed because of the recent reductions in European newsprint capacity, according to TD Securities.

Since earlier this year, European newsprint capacity closures totaling 800,000 tonnes/year have made it possible for European producers to raise prices by $30-$45/tonne in the U.K. and by $20-$30/tonne in Continental Europe, reported RBC Capital Markets in its Oct. 21 research note.

North American capacity cuts for newsprint and groundwood printing papers since the start of 2012 have totaled 495,000 tonnes/year net, a reduction of 1.5% CAGR, while annual North American shipments are down 9.8% in 2012 and 3.8% year-to-date 2013, TD Securities reported.

“In our view, newsprint markets remain oversupplied,” TD Securities stated, noting that additional permanent closures were needed to offset declining U.S. demand and to maintain operating rates.

North American newsprint mills operated at 92% in September, down two percentage points from the prior month but flat from a year earlier and in line with the average year-to-date, based on PPPC statistics, reported TD Securities.

Earlier this month, TD Securities and RBC Capital Markets each lowered their U.S. newsprint price forecasts for 2013, to $608 from $612 and to $610 from $615, respectively. For 2014, RBC Capital expects the price to stay at $610, and TD Securities dropped its forecast to $613 from $620.

Prices cannot be maintained unless North American newsprint capacity closures keep up with the downward trend in demand, TD Securities stated in its Oct. 22 research report. Various analysts have concurred with that assessment.

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