There’s a simple way for North American mills to prevent the prices of coated paper from collapsing next year, the “Paper Guru” pointed out recently. Simple, but it won't work.
Responding to last week’s Dead Tree Edition article about the possibility of declining prices, Jack Miller, Printing Impressions’ Paper Guru, wrote, “Uncoated freesheet producers have reduced capacity, balanced supply and demand, and maintained prices.”
“With U.S. coated mills still under cost pressures from pulp and chemicals, and with margins where they are,” he suggested, the coated mills might take out capacity to keep the market in balance. But what works for uncoated freesheet will be hard to apply to coated paper.
The North American uncoated freesheet market is dominated by two big players, International Paper and Domtar, that are financially strong and have low-cost mills. That puts them in a position to idle machines or shut down mills if necessary to keep the market in balance.
But leadership of North America’s coated-paper market has one foot in the grave and the other on a banana peel. The #1 maker is NewPage, which is under Chapter 11 bankruptcy protection, making it nearly impossible to shut down a machine or mill in the short run. Besides, NewPage claims it has already mothballed all its high-cost machines.
The #2 manufacturer is Verso, a highly leveraged firm with a debt-to-equity ratio of about 18:1. Like NewPage, it’s not in much of a position to idle machines that could be generating cash.
SAPPI is the only other manufacturer with significant market share, but it produces coated freesheet almost exclusively. Coated groundwood (AKA coated mechanical) is where the big trouble lurks.
The bottom line is that no company with the financial strength to reduce capacity has enough North American market share to make much of a difference in the supply-demand balance. That’s why industry analyst Verle Sutton recently predicted that coated prices will decrease next year until losses force some companies to idle their machines.