Sunday, May 31, 2009

Coated Paper Prices Have Crashed

Despite all the talk of "green shoots" in the economy at large, prices for coated paper have recently dropped even more than expected.

Less than two months ago, we polled readers about where they expected prices for 40# #5, then at $900/ton, to be in July. Most thought the RISI index for the grade would decrease, but only 29% voted for the index to be below $820 ($41/cwt.)

Most of the voters (including me) have already turned out to be wrong: Though it hasn't released its full report yet, RISI has revealed that its 40# index for May was $810. It is also projecting that the bottom of the market for all types of coated paper will be much lower than it previously predicted.

Demand may perk up a bit as inventories are burned off and we enter the busier half of the year. But the problem is supply: There are simply too many North American mills churning out coated paper.

Market leader NewPage has indicated it has no more high-cost machines to shut down, and the black-liquor credit has given many U.S. mills a huge subsidy to keep their pulp and paper machines running. It seems likely that paper prices will keep dropping until the least efficient machines or mills can't even cover their variable costs.


elewis said...

Are there really too many mills in North America? Or are we buying more and more paper overseas? Seems to me that printers are buying less and less of the domestic sheets and more of the foreign sheet. I am not sure there are too many mills in North America, as much as perhaps there is too much buying of foreign sheets. Comments?

foofoo said...

Pretty sure it's too much domestic supply. While supply has fallen, demand has fallen faster. Magazines (the majority of the end product) are going bankrupt left and right. Combine that with the black liquor tax credit and trailing pulp prices (still high) and we have entered the phase where all non-integrated mills will have to shut. However this hasn't actually happened yet.

Anonymous said...

5 of 10 brands sold by Sappi in the US aren't made here. They finally curtailed/shut their non-integrated mill in Michigan and just added the M-Real European coated paper assets.

Can you say "need to show synergy?"

BillRuesch said...

As an in-the-trenches printing broker I hear customers complaints about paper. They truly believe that paper prices are being manipulated. Isn't it interesting to contemplate the differences between reality and perceived reality, especially when the decision is ultimately in the customer's hands?