FORESTWEB Report: North American Newsprint Market’s Decline Slows as Exports Pick Up

By: Debra Garcia

North American newsprint markets might be seeing the light at the end of the tunnel, at least for now, as exports continue to pick up and U.S. consumption declines by lesser degrees, according to various reports.

In February, total North American newsprint demand increased year-over-year by 1.5% to 447,000 tonnes, the Pulp and Paper Products Council (PPPC) reported on March 24. Both Februarys had four Sundays.

However, year-to-date, North American demand is down 3.9% year-over-year, to 925,000 tonnes due to a weak January. January?s data was especially depressed considering that there was one additional Sunday compared to January 2009.

While total U.S. consumption declined 11.5% during February versus a year earlier, this is the slowest rate of decline since March 2008, according to a March 25 research note from TD Newcrest.

February?s consumption by U.S. daily newspapers, which accounted for 74% of the total, declined year-over-year by 14.1% and consumption by commercial printers declined only 2.2%, according to the March 2010 Newsprint Tracker, published by Allan Consulting. The publication further indicated that U.S. dailies consumed 16.0% less newsprint year-over-year through the first two months.

TD Newcrest said February?s year-over-year rate of U.S. daily consumption decline was the slowest since mid-2008 — although the ?comparisons in early 2009 are becoming easier.?

Newsprint ?is benefiting from a post-recession bounce in pre-prints,? reported the Newsprint Tracker. ?We don?t think this sector will do quite as well later in the year.?

Operating rate at 90%
North American newsprint mills operated at 90% of capacity in February, the first time since November 2008 that operating rates were ?above 90%?, commented TD Newcrest. Through the first two months, the operating rate was 87%, which is nine percentage points higher than a year earlier, according to TD Newcrest.

February?s North American newsprint production was up 1.5% year-over-year from last February, according to the Newsprint Tracker.

The Newsprint Tracker noted that February?s numbers included stepped-up operations at AbitibiBowater Inc.?s Thunder Bay, Ontario, and Liverpool, Nova Scotia, newsprint mills, but they do not reflect the capacity reduction of the company?s Thorold, Ontario, mill.

North American newsprint shipments increased 5.5% year-over-year in February, bringing the total year-to-date to 1.234 million tonnes, up 4.2% from a year earlier, according to the PPPC.

February newsprint shipments improved year-over-year both for Canada and the U.S., which were up 4.4% and 7.2%, respectively. This brought shipments through the first two months to levels of 728,000 tonnes for Canada and 506,000 tonnes in the U.S., which were up year-over-year by 5.2% and 2.6%, respectively, reported TD Newcrest.

Exports still trending up
Exports have improved since mid-2009 and were up sharply in February, partially because of an easier comparison period, noted TD Newcrest.

In February, total North American newsprint exports were up 21.3% from last February. This brought the total through the first two months to 323,000 tonnes, which was up 37.2% year-over-year, according to the PPPC.

Allan Consulting says this February surge in newsprint exports was primarily due to non-Japan Asia, ?with shipments to the region at 328% of last February?s depressed level.?

?Domestic usage and exports are still on track for a significant moderation from last year?s ruinous performance, but high output levels pushed inventories up once again in February,? reported the Newsprint Tracker.

Total North American mill inventories of newsprint ended February at a level of 366,000 tonnes, according to the PPPC. This was 38,000 tonnes higher than at the end of January but still 113,000 tonnes lower than the 479,000 tonnes held in inventory at the end of last February.

TD Newcrest reported that the inventory buildup by newsprint mills in February was higher than the 10-year average increase of 24,700 tonnes.

The Newsprint Tracker commented that ?some of the restocking was needed to support higher exports,? but the continued growth in inventories destined for the domestic market, on top of relatively high stocks held by U.S. dailies, ?were at a level that should trouble producers.?

U.S. dailies held 53 days of supply at the end of February, which is the same as a month earlier and three days below a year ago, according to the PPPC.

Inventories a concern
Allan Consulting said that days held in stock at U.S. dailies is ?high enough to leave buyers some breathing room as they negotiate future price changes.? However, mills stocks are not yet high enough that prices would have to be slashed.

?With more downtime in March and April and seasonal usage patterns now picking up, suppliers should find it possible — if not easy — to put through additional price increases in the near-term,? according to Allan Consulting, adding that the US $25 per tonne April price hike ?looks to be within reach for the mills.?

Citing rising costs, AbitibiBowater announced it will raise the price of its 48.8 grams per square meter newsprint (30 lb.) by $25/tonne on both May 1 and June 1, with other basis weights and colored grades adjusted accordingly.

Since a cyclical low in August 2009, North American newsprint producers have been able to lift prices by an aggregate $130/tonne in the eastern U.S., reported TD Newcrest, noting that March published prices were $565/tonne for the East, after a $15/tonne increase from February.

Price hikes totaling $170/tonne have been announced to take effect between September 2009 and April 2010. ?We expect the remainder of the price increases to be realized through mid-2010, TD Newcrest forecast prior to AbitibiBowater?s announcement of the May 1 and June 1 increases.

The Reel Time Report, however, is not as optimistic about price momentum continuing. ?We hear reports of market weakness in the eastern U.S.,? reported the publication in its March issue. ?We will be surprised if prices increase above $550 barring the removal of significant newsprint capacity.?

However, for March the Reel Time Report gave another hike in the U.S. West a ?good chance? of moving up more than in the East, where it did not think the entire $25/tonne increase would stick in March. ?We are concerned that prices could begin eroding by April unless capacity is removed,? the publication reported.

In March, the Reel Time Report raised its 27.6-pound newsprint average price in the U.S. to $575/tonne from $570/tonne in February. Its 30-pound newsprint price also increased $5/ton during this time, to $540/tonne.

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