FORESTWEB: Analysts Say Capacity Closures Will Keep Pressure on Prices

By: Debbie Garcia

North American newsprint data in June continued to reflect a market in decline, although more of the downturn is being felt in Canada, according to data released July 23 by the Pulp and Paper Products Council (PPPC).

Despite the depressed data, newsprint prices continued to advance by about $20/tonne per month in the first half, in accordance with announcements by major North American newsprint suppliers. Another round of identical hikes is planned for the third quarter.

North American newsprint producers shipped 847,000 tonnes in June, a 10.4% drop from last June; and, through the first half of 2008 5.196 million tonnes of newsprint was shipped, a 6.6% decrease year-over-year. However, Canadian shipments in June were down year-over-year by a sharp 13.2%, while U.S. newsprint shipments fell by 5.9%.

Likewise, newsprint output in Canada dropped more significantly than in the U.S.. In Canada, 486,000 tonnes of newsprint were produced in June, down 13.5% year over year, while the January-June total of 3.02 million tonnes was off by 12.5% compared to first-half 2007. But, in the U.S., newsprint output totaled 346,000 tonnes in June, down 6.4%, and the year-to-date total of 2.147 million tonnes was a relatively mild drop of 4.2% from the first six months of 2007.

Total North American newsprint production was 831,000 tonnes in June, down 10.7% year over year, bringing the year-to-date total output to 5.167 million tonnes, a drop of 9.2% from first-half 2007, PPPC reported.

U.S. operating rates flat to up. In June, the Canada’s newsprint operating rate of 87% was down dramatically from the 93% rate of last June, and dropped by a similar amount through the first six months, to 88% vs 94% in first-half 2007. The U.S. operating rate, though, was flat in June compared to a year earlier, at 97%, and the year-to-date operating rate of 95% actually increased by 1% compared to first-half 2007.

For total North America, the operating rate for newsprint producers was 91% for both June and through the first six months of this year. This compared to a rate of 95% last June and 94% in 2007’s first six months.

North American newsprint exports continued to decline in June, slipping by 3.8% year over year, to 223,000 tonnes. Through the first six months, the 1.169 million tonnes of newsprint exported from North America was about flat from a year earlier (down 0.4%), according to the PPPC.

However, Canada exported less than a year ago while the U.S. experienced growth in newsprint exports. In June, the 50,000 tonnes of newsprint exported from the U.S. was up 3.6% year over year, bringing the year-to-date total to 258,000 tonnes, up 9.2% vs first-half 2007. Canada’s newsprint exports in June totaled 173,000 tonnes, a year-over-year drop of 5.7%, bringing the total through the first six months to 911,000 tonnes, a 2.8% decline from January-June 2007.

Mills reduce inventories further. Despite the overall decrease in shipments, North American newsprint producers were able to reduce inventories in June by 16,000 tonnes, to 334,000 tonnes, which was 120,000 tonnes lower than a year earlier.

Canadian inventories were down more significantly, showing a loss of 16,000 tonnes in June and a drop of 119,000 tonnes from a year ago. In the U.S., though, mill stocks grew by 1,000 tonnes in June and were just 1,000 tonnes lower than a year ago.

Data for consumer inventories, as well as consumption figures for daily newspapers and all U.S. consumers, was not available this week, but is expected to be released next week, PPPC indicated. However, any consumption downturn this year vs last year will be lessened somewhat by there being one additional Sunday for both this June and this year’s first half compared to the same two periods in 2007.

PPPC data indicated that total U.S. newsprint demand totaled 551,000 tonnes in June, a year-over-year decrease of 12.8%; and, through first-half 2008, the 3.588 million tonnes of newsprint demand in the U.S. was down 8.5% year over year.

More capacity shuts expected. In a July 14 report, RBC Capital Markets projects that the ?growing supply/demand market imbalance? will lead to further newsprint capacity closures. According to Paul Quinn, analyst, AbitibiBowater Inc. shut down 600,000 tonnes of newsprint capacity in first-quarter 2008 as part of the company’s Phase I closures and expects more capacity to be shuttered in Phase II.

CIBC World Markets indicated in a July 4 analysis that several U.S. newspaper publishers had weak May results. Circulation declined by 3.9% for Gannett Co. Inc. and dropped 3.6% for The McClatchy Co. Also, McClatchy’s lineage fell by 15.9%.

The Reel Time Report expects newsprint prices to continue to increase by $20/tonne through the third quarter. For June, the publication lists 30-lb newsprint in the U.S. at a price of $670/tonne.

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