Coated Paper Market: Been Down So Long This Looks Like Up

North American coated paper mills were generally busier in September than August, but that ain’t saying much.

Despite various announcements of price increases on coated freesheet and high-brightness coated groundwood papers, the unanimous word from the trenches is that no prices are moving up except perhaps for some really low-ball spot business.

The best that can be said is that the market seems to have stablized this fall after months of plummeting prices. North American shipments of coated paper were up in September versus the previous month – 8% for coated freesheet and 5% for coated groundwood, according to the Pulp and Paper Products Council. But compared with September 2008, shipments declined 15% and 8%, respectively.

Actual consumption of coated papers in the U.S., was even less favorable, according to data from printers compiled by Idealliance. September consumption of coated was down more than 5% versus the previous month. Usage of coated freesheet was down a whopping 32% versus September 2008, while coated groundwood dropped “only” 23%.

Consumption of uncoated groundwood held its own versus August and was actually up versus the same month last year for the fifth month in a row, according to Idealliance.

To keep their coated machines busy amidst the declining demand for coated papers, several companies have recently begun making supercalendered and other uncoated-groundwood papers on machines that have coaters. (See, for example, The Rush to Make Uncoated Paper on Coated Machines and There's Little Clarity About Some SCA Papers.)

The new supply continues to place pressure on uncoated-groundwood prices, which seem to be continuing a downward drift.

Though coated-freesheet prices are at their lowest in more than two years, there was speculation a few months ago that they could crash even more. The black-liquor credits subsidizing U.S. kraft-pulp mills to the tune of about $200 per ton threatened to make freesheet papers a virtual byproduct of the kraft process, with the resulting glut continuing to drive paper prices until the credits expire at the end of this year. (See "Black Liquor" Credits Are Helping Paper Buyers.)

But the surprising recent strength of global pulp markets, which by some accounts are experiencing their strongest rebound in history, has provided an outlet for all that subsidized U.S. pulp. And the weakening U.S. dollar has discouraged imports of paper into the U.S. from overseas.

Coated prices seem unlikely to move much for the remainder of the year. And what about next year?

Some paper-company executives claim that prices “must” go up because the black-liquor credits that have kept them solvent will disappear.

But a need for higher prices does not translate into higher prices. (Exhibit A: rates for magazine advertising). And bankruptcy reorganizations of major players don’t necessarily stabilize prices (Exhibit B: the newsprint market this year). Prices won't move up significantly until demand recovers significantly, which seems unlikely in 2010, or more machines are closed.