North American Newsprint Mills Slash Inventories in September

By: Debbie Garcia Newsprint suppliers appear to be getting serious about firming up markets as newsprint prices continue to erode amid sliding U.S. demand.

According to the latest report from the Pulp and Paper Products Council (PPPC), North American newsprint inventories dropped significantly in all categories last month.

Total newsprint stocks held by North American mills dropped by 85,000 tonnes in September, ending the month at 447,000 tonnes. Although this level was still 91,000 tonnes higher than a year earlier, it was the first time in a while that mills have reduced inventories enough to be lower year-over-year.

Downtime has accelerated in Canada, where newsprint mills are faced with rising costs and reduced profits,
exacerbated by a Canadian dollar that keeps strengthening. In the past month, Tembec Inc. and Kruger Inc. separately announced plans to indefinitely idle newsprint capacity totaling 180,000 tonnes/year.
Kruger also temporarily curtailed 25,000 tonnes of newsprint production at two Quebec mills, primarily for November.

The downtime also reduced output of supercalendered paper by 6,000 tonnes, and coated paper by 8,000 tonnes.

These are the first signs that the second and third tier players are willing to act in front of an Abitibi-Bowater merger," said Mark Wilde, industry analyst at Deutsche Bank, in an Oct. 22 report.

The merger of Abitibi-Consolidated Inc. and Bowater Inc. is expected to be completed in a few weeks, according to reports. The U.S. Dept. of Justice recently indicated that Abitibi must sell its Snowflake, Ariz., newsprint mill as one of the stipulations for the merger.

Industry analysts have indicated that shutdowns would be the only way to shore up the newsprint market due to the continued decline in demand. The industry has attempted to raise prices since late summer but transaction levels continue to decline and are currently at $550-$560/tonne, sources report.

SP Newsprint Co. is the latest to attempt a price hike, with a $30/tonne increase slated for Nov. 1. Catalyst Paper Corp. previously announced a $25/tonne increase for Oct. 1, following a failed attempt by Kruger Inc. for a $25/tonne
hike Sept. 1.

"If 'needing' a price increase were ever going to actually result in a price increase, it would be now," noted Verle Sutton, editor, The Reel Time Report in the publication's October issue. He expects prices to bottom out soon in Canadian dollars.

Currently, though, newsprint in North America remains a seller's market, with demand continuing to decline steadily. The recent PPPC statistics show newsprint consumption by U.S. dailies fell year-over-year in September by 9.8%, to 523,000 tonnes. This brought the year-to-date total to just under 4.7 million tonnes, down 9.9% from a year earlier.

Total U.S. consumption, which includes commercial printers, was 653,000 tonnes in September, down 9.2%
year-over-year and off 10.8% through the first three quarters, to 5.8 million tonnes, PPPC reported.
With demand on a downward trend, consumer stocks continue to decline and fell last month by an additional 36,000 tonnes for all U.S. users and by 40,000 tonnes for U.S. dailies. These levels were down 138,000 tonnes and 106,000 tonnes, respectively, from a year ago.

The only bright spot on the demand side was from the export market, which showed a 20.4% year-over-year jump in September, to 225,000 tonnes. This brought the year-to-date total through the third quarter to just over 1.8 million tonnes, up 10.2% from January-September last year.

Western Europe remained a robust destination for North American newsprint shipments, showing a year-over-year gain of 61.6% in September and up 68.8% through the first nine months. Latin America also improved in September, jumping 12.9% compared to last September, but remained just 1.9% ahead on a year-to-date basis vs a year ago, according to PPPC data.

North American newsprint mills produced 813,000 tonnes in September, down 14.2%year-over-year. However, the 8.4 million tonnes produced through the first three quarters was down by a more moderate 5.4% year-over-year.

Operating rates fell sharply in September to 86% vs 93% last September. Through the first nine months, though, operating rates were 94% in both years.
Total North American newsprint shipments declined just 4.4% in September vs a year earlier, and were off 6.2%
year-to-date, to 8.3 million tonnes.

September data is based on the month having five Sundays this year vs four last September. The number of Sundays though the first three quarters, however, is the same for both 2006 and 2007, PPPC reported.