The size of the recent run-up in coated paper prices seems to have surprised most industry participants and observers.
RISI, the paper industry's leading market analyst, will report in a few days that the July market price of 40# coated #5 paper in the U.S. was $805 per ton, an increase of $70 since March, Dead Tree Edition has learned. In a March online poll, only 21% of Dead Tree Edition readers predicted that the index would increase $65 or more by July.
Despite its reputation for having a bulish bias, even RISI's forecasts turned out to be too low. In March, it was predicting that the 3rd Quarter price for 40# would be only $765.
The other major analyst of U.S. paper-market pricing, Forestweb's The Reel Time Report, reports an even larger increase in coated paper prices since March -- more than $100 versus the $60-$70 range for RISI indices. That monthly report had warned about the possibility of sustained price increases this year, but it turned somewhat bearish in March after NewPage restarted two idle machines.
Slight recoveries in catalog mailings and publication advertising, along with the idling of a Kruger mill and rising prices for kraft pulp, have at least temporarily solved the capacity overhang that was driving prices down. Buyers trying to load up before the next price increase have helped to create an especially tight market during the usually busy summer season.
But inventory adjustments can't sustain a bull market for long. Before they get too confident, sellers of coated paper in the U.S. should find out how many of their catalog and magazine customers are spooked by the U.S. Postal Service's attempt to get "exigent" rate increases and are therefore redoubling efforts to shift more to digital media.
Hi Ed (I hope its Ok if we are on a first name basis, Mr. Tree just didn't seem right). I just want to add a p.s. to your excellant blog. Don't forget about the impact of Domtar exiting the business and shutting down 238,000 tons of capacity in April, and we also had a dock-strike in Finland and tariffs on some Asian paper that all helped raise coated paper prices in their own way. Coated paper demand was up an incredible 18% in the first half of 2010 and this will help drive yet a third price increase for the fall. However, I am willing to bet that coated paper demand will turn negative in the 4th quarter of 2010 and into 2011. Poor printers and publishers are going to be hit with the three P's, rising costs for paper, postage, and printing (as a possible result of Quad/Worldcolor rationalization)
ReplyDeleteJohn Maine (RISI Paper Trader)