Newsprint Shipments Edge Up, Thanks to Latin America

By: Debbie Garcia (Forestweb) North American newsprint shipments eased ahead in November, up 0.4% compared to a year ago. This is due largely to a nearly 50% increase in deliveries to Latin America, according to the latest statistics from the Pulp & Paper Products Council (PPPC).

North American newsprint shipments to overseas destinations increased 11.7% overall in November, compared to a year ago. The 249,000 tons exported for the month brought year-to-date to 2.3 million tons, which was still down 3.6% from the same 11-month period in 2003.

All export markets were down in November except for Latin America, which was up by 49.6%, to 110,000 tons. That brings the year-to-date total to 739,000 tons, 9.7% ahead of January-November 2003.

The PPPC reported that gains in Latin American deliveries were made in the majority of markets in that region, ?though most notably in Puerto Rico and Mexico.?

North America's November newsprint shipments to Western Europe fell 30.5%, to 42,000 tons; Asia (excluding Japan) was down 1.4%, to 51,000 tons; and, Japan was off 9.9%, to 34,000 tons. All of these markets were also down year-to-date.

Mill inventories drop

With total shipments up slightly, North American mill inventories dropped by 34,000 tons in November to 312,000 tons, which was 40,000 tons lower than a year ago and remained 25% (more than 100,000 tons) below the five-year average, according to the PPPC. The association noted that mill stock levels have remained relatively unchanged since the beginning of the year.

Most of November's mill inventory drop came in Canada, which was down 33,000 tons, while U.S. mills trimmed just 1,000 tons from their stocks. This left Canadian mills with 255,000 tons of newsprint on hand at the end of November, while U.S. mills had 57,000 tons.

However, compared to a year ago, U.S. mill newsprint stocks were down by 30,000 tons, while Canadian inventories were down by 11,000 tons. Most of November's inventory cuts were made in stocks destined for overseas markets, which dropped by 35,000 tons from a month earlier, although stocks destined for the North American market were down 46,000 tons from a year ago.

Demand remained depressed in November, with total North American demand down by 2.5% year-over-year, to 891,000 tons. This brought year-to-date to 10.1 million tons, down 1.4% from the same 11-month period in 2003. Canadian demand was up year-over-year by 1.4% in November, but year-to-date was still down 3.5%. Total U.S. demand fell 3.0% in November, to 799,000 tons, and year-to-date was off by 1.2%, to 9.1 million tons.

U.S. consumption down

Consumption by U.S. dailies fell 3.1% year-over-year in November, to 660,000 tons. This brought year-to-date to 7.3 million tons, off 1.4% from a year ago. However, this November had one less Sunday than in November 2003; year-to-date, there were 48 Sundays both for this year and last year.

?Removing the typical 1%-2% benefit from an extra Sunday suggest that the underlying number is something in the range of 1.5% decline,? commented Mark Wilde, an industry analyst with Deutsche Bank. ?Year-to-date, consumption is now down 1.4%.?

Total U.S. consumption dropped by 2.0% in November compared to a year earlier, to 824,000 tons. Through the first 11 months of this year, total U.S. consumption is down 1.5%, to 9.1 million tons.

The PPPC indicated that the most recent ad-linage data revealed a 1.9% increase in October, which left the year-to-date figure unchanged at +1.7%.

Inventories held by U.S. newsprint consumers dropped in November but were still higher than a year ago. At the end of November, U.S. dailies had 883,000 tons in stock, down 16,000 tons from a month earlier but 39,000 tons higher than a year ago. The PPPC said this was slightly less than the 22,000-ton historical-average inventory draw-down. U.S. dailies' days of supply, however, remained at the same 41 days held a month earlier.

All U.S. users dropped their inventories by 25,000 tons in November, to 1.0 million tons. However, this was still 18,000 tons higher than a year ago, and days of supply remained at October's level of 38 days.

North American newsprint production was down 2.8% year-over-year in November, to nearly 1.1 million tons, bringing year-to-date to 12.2 million tons, down 2.3% from a year ago. The operating rate for November dropped by 1% from a year ago for both November and year-to-date, to 93% and 92%, respectively.

Idled capacity considered

The PPPC noted that if the indefinitely idled capacity across North America -- which totals approximately half a million tons on an annual basis, or 3.5% of newsprint capacity -- were excluded, the North American production level would represent a 97% operating rate (96% for the first 11 months of 2004).

At this higher operating rate, the North American newsprint industry is in a better position to implement another price increase in first-quarter 2005. Additional downtime announcements not reflected in the PPPC statistics but publicly announced further bolster the chances for the hike, industry sources have said.

More of the recent downtime announcements have come from Canada, where the strong currency is putting pressure on operating profits. PPPC statistics indicated lower production levels and operating rates for newsprint mills in Canada than for those in the U.S.

?With the Canadian dollar up sharply in November, Canadian mills have been throttling back,? said Wilde. ?Even the run 'n gun producers like Kruger and Tembec have been notifying the market about downtime.?

In November, Canadian operating rates fell 1% year-over-year for both the month and year-to-date, to 93% and 92%, respectively. In the U.S., though, operating rates were up by 1% year-over-year for both November and year-to-date, to 95% and 93%, respectively.

?Over the next several months, the rates will probably trend higher in the U.S. and lower in Canada,? noted Wilde. ?A rising Canadian dollar is shifting the cost curve in North America, improving the relative position of the U.S. mills.?

Production also fell less in the United States than in Canada. In Canada, production dropped 3.3% for November (674,000 tons) and was down 3.6% through the first 11 months of 2004 (7.5 million tons). In the United States, though, production was off just 1.8% in November (413,000 tons) and was just 0.2% lower year-to-date (4.7 million tons).

?We think producers have realized that with no impending improvement in demand, their only lever is supply and they are removing capacity at a healthy clip,? said Wilde.


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