Paper Market Update – March 2014

Paper Market Update – March 2014
by Midland Paper

 

Paper Market Update Photo

On January 6, 2014 it was announced that Verso Paper and NewPage Corporation have entered into a definitive agreement under which Verso will acquire NewPage. This is very big news for our industry and will eventually lead to reduced paper capacity as the mills attempt to halt price erosion. The combined companies will represent over 50% of the coated freesheet and coated groundwood markets before any divestiture or potential reduction in capacity takes place.

This deal still has to overcome the obstacles of arranging financing and FTC approval, so though it is likely, there is still a chance it may not happen despite both companies’ willingness to get it done.

International Paper and NewPage also announced mill and machine closures that will eliminate approximately 130,000 tons of coated capacity in 2014; meanwhile coated paper demand is expected to drop by 230,000 tons this year.

If the Verso/NewPage acquisition goes through, we predict that they will permanently close additional capacity in the second half of 2014 in an effort to bridge some of the gap between supply and demand.

Supercalendered mills benefited in 2013 as a few major catalogers and magazine publishers shifted from coated #5 to SCA grades, this allowed them to implement a modest price increase last year.  In 2014 we expect the SC market to soften due to the smaller than normal price gap between the SCA and coated #5 grades, increased imports, decreased exports, and lighter than expected holiday season shipments.

In late February, West Linn Paper Company announced a $2.00/cwt freesheet price increase for April 1st in an attempt to offset rising energy costs.  The coated freesheet market is not strong and to date no other mills have followed this increase.

Based upon current conditions and recent announcements, we are forecasting flat pricing through early Q2 of 2014 because most of the pricing drop already occurred in late 2013/early 2014 and several mills are taking machine downtime to prevent further price reductions.

We could see a groundwood price increase announcement in late Q2 in anticipation of further mill closures in the second half of the year.  If there actually are mill closures as expected, we would also not be surprised to see the mills announce another increase in the second half of 2014.  It is difficult to predict exact amounts and timing, but if you want to budget for a potential worst-case scenario, we suggest planning for two price increase announcements in 2014.

This market update is speculative based upon current conditions and is subject to change if we see a large demand increase, a major decrease in supply, or a significant increase in mill input and freight costs.

 

 

About the Author: Jim Gibbs

Vice President of Sales & Marketing at The Dingley Press. Jim has been with Dingley since 2002 and lives in Maine near our Lisbon, Maine plant location.