PAPER MARKET PRICE REVIEWS

(28/09/2018)

The International Trade Commission (ITC) has removed the U.S. duties on Canadian imports of uncoated groundwood. Paper markets are in the midst of an upward price cycle. For the first time in many years, all paper markets are considerably tight and price increases are being implemented with relative ease in 2018. This is similar to the last big price rally of 2007-2008.

Recent News

The ITC voted unanimously to terminate the tariffs currently being applied to uncoated groundwood newsprint, directory, and machine finish paper imported from Canada…effective immediately, and retroactively refunded.

➢ Glatfelter announced it has entered into a definitive agreement to sell its Specialty Papers Business Unit on a cash free and debt free basis to Lindsay Goldberg for a total sale price of $360 million. This includes their Spring Grove, PA mill and their Chillicothe and Freemont mills in Ohio.

➢ Higher prices and supply shortages remain as significant headwinds for North American paper buyers ahead of the peak print season…and instead of the customary summer lull, activity is more frantic than usual.

➢ ND Paper entered into an agreement to purchase the Fairmont recycled pulp mill from Resolute Forest Products in a transaction valued at US $55 million.

➢ Verso re-started (in July) its idle paper machine No. 3 at its Androscoggin Mill in Jay, ME, producing kraft linerboard, following a low-cost conversion project. The former coated printing and writing paper machine, and related pulp line were first idled in January 2017.

➢ White Birch’s Bear Island paper mill was acquired by Cascades for $34.2m in July 2018. The plant will be temporarily operated by White Birch Paper as a newsprint mill under a 27- month lease period. It will then be converted into a linerboard plant by Cascades.

Market Drivers

o Wood pulp prices increased $20/tonne in August, or 15% YTD in 2018. Up 45% since the bottom of the cycle in Q1 2016.

o US Dollar currency exchange: The euro is currently at 1.16 and trending upward. The Canadian dollar is currently at 0.76 and trending down. The euro is down 8% from its peak in February of this year.

Paper Grade Review

o Coated – Mills announced price increases for September, between $1.00/cwt and $3.00/cwt depending upon mill and grade. These increases are driven by the many machine and mill closures over the past year. Coated paper demand is still down and continuing to decline but the mill capacity reductions have outpaced the reductions in demand.

o Uncoated freesheet – Demand has improved for 2018 and sufficient capacity has been removed to strengthen this market and drive further price increases of $2.50/cwt for September. Demand is down 1%, but capacity is down 5% this year, and operating rates have risen to 91%, which equates to a balanced market.

o Uncoated groundwood (including SC) – U.S. tariffs on Canadian produced UGW newsprint, directory, and machine finish grades were eliminated on August 29th, when the International Trade Commission (ITC) ruled that these imports had not caused injury to the U.S. market. The tariffs on SC grades had previously been removed in July. Demand for UGW grades is the poorest within any paper market, with directories and newsprint inserts faring the worst. But because so much capacity has been removed by the mills, operating rates are at 97% YTD with a very tight market as a result.

o Newsprint – As mentioned above, U.S. tariffs on Canadian produced newsprint were eliminated on August 29, and 60% of U.S. newsprint supply is produced in Canada. No further U.S. CVDs or ADDs will be paid and all duties collected will be refunded to the Canadian mills. Despite this, industry analysts continue to forecast two-digit declines in demand for 2019, and increased supply availability as Canadian producers participate, once again, in the U.S. market and as White Birch restarts the Ashland VA mill in October.

o According to industry indexes, 2018 prices through August 2018 have increased as follows: newsprint is up 15%-20% and varies widely by region; SC is up 13%; UGW machine finish grades are up 16%; uncoated freesheet prices are up 12%, coated groundwood prices are up 9%-11%; & coated freesheet prices are 13% higher than they were at end of 2017.

000s omitted; Source: PPPC & Quad Paper Services

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