By: Debra Garcia
While North American’s newsprint industry remains depressed due to surplus capacity at a time of declining domestic demand, improved export orders supported the weakened market in May, according to recently released statistics from the Pulp and Paper Products Council (PPPC).
Overseas shipments from North America reached 228,000 tonnes in May, up 29% year-over-year, bringing the total through the first five months to 942,000 tonnes, 5.6% ahead of a year ago.
All major export markets improved sharply in May, although only Western Europe was up on a year-to-date basis. Western Europe has been strong this year, with May shipments nearly doubled from a year earlier and January-February deliveries up 69.8%.
Comparing the first five months of 2007 to 2006, Latin America was down 7.0%, Japan was off 13.1% and non-Japan Asia dipped 6.0%; however, in May, all three markets were up year-over-year by 1.5%, 32.6% and 37.4%, respectively.
Meanwhile imports into North America continue to decline, despite increased capacity in China. Imports fell year-over-year by 68.7% in May and were off 51.3% during January-May. This is surprising considering that Chinese newsprint manufacturers were expected to market some of their increased capacity in the U.S. this year.
Domestically, North American newsprint producers are still finding markets difficult. Total North American demand fell year-over-year by 8.7% in May and by 10.8% through the first five months, according to the PPPC.
Consumption by U.S. daily newspapers was down 9.2% in May and fell 9.1% year-to-date compared to the same periods in 2006. Total U.S. consumption, which includes commercial printers, fell year-over-year by 8.9% in May and was down 11.1% year-to-date.
The two Mays had the same number of Sundays, but January-May 2006 had one additional Sunday compared to 2007?s first five months.
North American newsprint mills produced 943,000 tonnes in May, down 5.9% from last May. Production reached nearly 4.8 million tonnes year-to-date, down 5.2% from a year earlier. At the same time, operating rates fell from 95% in both periods last year to 94% for both periods this year.
Inventory drop biggest in 15 years.
The newsprint industry, though, is attempting to control inventories, with total North American producer stocks down 27,000 tonnes in May. However, they were still 121,000 tonnes higher than a year earlier, the PPPC reported.
Consumer stocks, though, are down. Inventories held by all U.S. users fell by 5,000 tonnes in May and were 101,000 tonnes lower than a year earlier. U.S. dailies inventories declined by 24,000 tonnes in May, and were 81,000 tonnes below a year ago, according to PPPC data.
Combining mill and consumer inventories, the total decline of 32,000 tonnes was the largest drop for May in the past 15 years, noted Chip Dillon, industry analyst with Citigroup Global Markets.
With buyers clearly having an upper hand, newsprint prices continued to erode. June marks the ninth consecutive monthly drop. According to FOEX Indexes Ltd.?s latest report, for June 19, the index for 30-lb newsprint in the U.S. fell in the preceding week by US$5.37, to US$575.66/tonne, which is down US$52.09, or 8.3%, since the beginning of the year.
The Reel Time Report?s July issue posted a U.S. May price of US$580/tonne, down from the latest peak of US$655/tonne, reached last summer. Prices have been dropping steadily since October.
Further price erosion forecast. Mark Wilde, industry analyst with Deutsche Bank, in a recent report estimated June newsprint prices down US$15, to US$585/tonne. In Canada, dealing with the Canadian dollar?s 30-plus year highs, ?a growing number of mills may be flirting with cash cost,? he said.
Citigroup projects that its May price of US$600/tonne will fall another US$30/tonne in the coming months. Due to the strong loonie, this would put prices in Canadian dollar terms at about the same level as in 1982, noted Dillon. However, because of the U.S. dollar-Euro exchange rate, U.S. prices would ?widen to a whooping US$136/tonne discount to European prices,? he noted.
While the potential for greater exports to Europe because of the favorable exchange rate will help, North American newsprint producers realize that more capacity should be shuttered to meet the rapid decline in domestic demand.
Further closures by Abitibi-Consolidated Inc. or Bowater Inc. are not likely to come until after the two companies merge, which is slated for late July. Mid-sized companies also are expected to indicate plans to close high-cost machines this year, noted Dillon.
Recently, some producers announced closures. Catalyst Paper Corp. indicated last month that it would indefinitely idle its 134,000 tonnes/year No. 4 newsprint machine at Port Alberni, B.C., by Sept. 1. More recently, a June fire at Abitibi-Consolidated Inc.?s Grand Falls, Nfld., newsprint mill resulted in a decision to shut the mill down for three weeks for repairs. Meanwhile, Kruger Inc. reportedly announced downtime at several mills.
Dillon expected a further newsprint price hike attempt later this year, despite the sluggish market. To be successful, the two biggest producers, Abitibi and Bowater, would have to support it, and that is not likely to occur until after the merger is completed ?due to concerns that such a move might be misread by regulators,? said Dillon.