US newsprint market likely to see downward trend in 2013; prices could fall US$30-US$60/tonne, bottom out by mid-year, says Reel Time; problems compounded by increased European exports, but that could change if euro keeps strengthening
February 7, 2013
(Industry Intelligence Inc.)
– The U.S. newsprint market appears to be in for at least a few months of falling prices caused by overcapacity from machine restarts and by an increase in European exports, according to the February issue of The Reel Time Report.
The situation in Europe could change, however, if the euro keeps strengthening, according to Verle Sutton, editor of The Reel Time Report.
North American newsprint producers had been exporting more in an effort to offset the decline in domestic demand. However, North America newsprint exports fell by 24.2% in 2012, according to the Pulp and Paper Products Council (PPPC).
Meanwhile, European newsprint exports were up 21.1% in 2012. This amounted to 330,000 tonnes, which accounted for a large portion of the 569,000-tonne decline in North American newsprint exports, The Reel Time Report indicated.
The recent strengthening in the euro relative to the U.S. dollar, however, “should eventually halt the decline in North American offshore exports and lead to a rebound,” said Sutton, who forecasts improvement as soon as the second quarter.
Europe is also buying less newsprint from North America, 30.1% less in 2012, according to the PPPC data.
However, demand growth in Asia, especially India, and in South America will at least partially offset the projected newsprint demand decline of 425,000 tonnes/year in North America, according to a Jan. 23 research note from RBC Capital Markets.
Tackling overcapacity. Sutton estimates that North American newsprint demand is declining by 400,000 tonnes/year. At this rate, the restart of White Birch Stadacona’s 250,000 tonnes/year mill has “accelerated market weakness by more than six months,” he said.
In addition to White Birch Stadacona in Quebec City, Quebec, Great Northern Paper Co. in East Millinocket, Maine, also restarted newsprint production capacity in 2012. Great Northern Paper’s restart amounted to about 1.5 machines totaling about 220,000 tonnes/year, according to The Reel Time Report.
In Europe, Stora Enso Oyj will permanently shut down two newsprint machines in Sweden totaling 475,000 tonnes/year of production capacity, representing 3.4% of European capacity, in second-quarter 2013.
The Stora Enso machines slated to be taken offline permanently are PM No. 2 at Hylte Mill and PM No. 11 at Kvarnsveden Mill, both in Sweden, according to Stora Enso’s Feb. 5 announcement.
This week, FOEX Indexes Ltd. reported that its PIX newsprint index fell by €4.02 per tonne (US$5.38) week-to-week to €486.77/tonne for the prior week, and noted that the strong euro was undermining exports. This price was down €8.80/tonne from a year ago.
Its PIX U.S. index for 30-lb. newsprint, however, remained unchanged at US$615.65/tonne, FOEX reported on Feb. 5.
Prices turn down. In January, U.S. newsprint prices declined for the first time in four years, with 30-lb. newsprint in the East falling by $15/tonne month-over-month, to $625/tonne, according to a Jan. 24 research note from TD Equity Research.
The Reel Time Report had a January price for 30-lb. newsprint of $620/tonne, down $15/tonne from December. The publication’s price for the grade varied by just $5/tonne in 2012, moving from $640/tonne during the year’s first five months, to $635 for the last seven months.
“The down-cycle has begun,” wrote Sutton in the February issue.
North American newsprint demand is expected to decline 6% to 10% this year, according to The Reel Time Report’s forecast.
More capacity will have to be eliminated, according to the publication, which expects these cuts to come from producers that are “high on the cost curve,” such as Great Northern, Kruger Inc. and Tembec Inc.
“We believe that further capacity closures will be needed to rebalance the market,” stated TD Equity Research’s Jan. 24 research note.
Demand shifts in 2012. North American newsprint demand declined by just 1.2% year-over-year in 2012, according to the PPPC data.
However, this was because a 20% gain in consumption by commercial printers more than offset a 5.8% slide in demand from daily newspapers, according to RBC Capital Markets, adding “The key will be the renewal of these commercial print contracts in 2013.”
North American domestic shipments to commercial printers fell month-over-month for the first time in 2012 in December, with a 5.7% drop that brought the year’s total to just over 1 million tonnes, which was 21.7% of the North American newsprint market, according to Sutton.
What the December drop means for the trend in 2013 remains to be seen, he noted.
Total newsprint shipments in Europe fell by 14.4% year-over-year in December to 786,000 tonnes, with regional shipments down 17.1% while exports increased by 0.8%, according to data from the European Association of Graphic Paper Producers (Euro-Graph).
Total European newsprint shipments for all of 2012 were down 4.7% from 2011. Comparing 2012 to 2011, European domestic demand fell by 9.9%, with domestic deliveries off 9.2%, while deliveries outside of Europe were up 21.1%, Euro-Graph reported.