Paper Prices Recover, Except Newsprint

By: James McLaren, special from Forestweb (ForestWeb) June appears to be marking an end to the prolonged U.S. paper industry slump as prices across most of the spectrum of pulp, paper, and paperboard seem firmly on an upward track, with the notable exceptions of newsprint and coated paper.

Demand does not appear to be necessarily strong for paper and board grades -- but with no where else for prices to go but up, mill downtime has helped keep inventories and conditions in better balance for most markets.

Many of the commodity paper/board grades are beginning to rebound from cyclical lows, after falling throughout last year from previous peaks in 2000. Pricing for some grades held up better than expected due to constrained capacity, mill shuts, and downtime, analysts said.

Recovered paper, market pulp, linerboard, recycled paperboard, uncoated free-sheet or copy paper, and tissue paper have all seen price initiatives in the latest quarter.

But advertising-prone newsprint and coated paper remain left out, reports note, although the newsprint market was seen as near or at the bottom.

North American newsprint conditions in May-June and statistics in April indicated the beleaguered industry sector may be in the trench. Prices were down again in May, while newspapers did not see near-term advertising conditions improving much.

Newsprint production was down 2.1% in Canada and down 9.6% in the U.S. in April from a year earlier as demand continued to be weak. Total North American inventories declined from March to April, but not as much as usual, according to monthly data from the Pulp and Paper Products Council (PPPC) in Montreal. (See table below.)

Prices appeared to be more stable than they have of late, but nevertheless were down from April by at least $5/tonne to $425/tonne in early May, according to "The Reel Time Report" on Forestweb. Current levels are about 31% lower than $620/tonne a year ago, "The Reel Time Report" shows.

Hi-brite newsprint grades dropped $20/tonne from April to May to about $490/tonne, according to "The Reel Time Report." Prices for both newsprint and hi-brites slipped about $10/tonne from March to April.

One analyst, citing average newsprint prices flat in April and May at $455/ton noted those levels were the lowest since 1994. He said producers were talking about a potential price increase in the third quarter.

Knight Ridder indicated in a recent presentation that it could foresee newsprint prices rising in the second half of the year, and some analysts were lifting their ratings on newsprint producers as an upcycle approaches.

If advertising markets recover in the second half of the year, one analyst said, "then newsprint consumption, operating rates, prices, and profits should follow." He added that newsprint was "less negative," but remained "a big disappointment." It appears to be one of few areas in the industry where prices have fallen all the way back down to prior cycle lows, he noted, "despite all of the consolidation of the past five years and all of the talk about matching production and supply to demand."

"It looks like the market is bottoming," commented another analyst about April-May conditions. "Domestic consumption appears to be flattening and inventories are relatively lean."

PPPC statistics

North American total newsprint output was down 5.2% in April to 1.160 million tonnes, PPPC reported, as the industry operated at 91% in Canada and 84% in the U.S. -- 88% on average.

Total inventories -- among mills and users -- declined 23,000 tonnes from March to April compared with a 10-year average decline of 45,000 tonnes. U.S. daily newspaper stocks of 868,000 tonnes in April were 21% lower than a year ago while mill inventories of 476,000 tonnes were up 13%.

North American newsprint shipments were down 3.2% overall and stayed off last year's pace by 12% through the first four months of the year. U.S. domestic shipments were off 9.1% in April and 15.5% year-to-date while Canada shipments to the U.S. were up 5.2% in April and down 4.7% year-to-date.

The total April shipment decline nevertheless marked a "clear break" in the double-digit comparisons observed over the last year, PPPC said. The fall was explained in equal proportions by slower domestic demand (-2.1%) and reduced exports (-7%).

Though North American deliveries to Latin America rebounded in April (+28%), they were off sharply in Western Europe (-23%) and were also down, though to a lesser degree, in other offshore markets.

Newsprint consumption by U.S. dailies was down 3.5% in April from a year ago, though PPPC noted there was one less Sunday in 2002, thereby making the year-over-year comparison more negative than would normally be the case.

To date this year, U.S. dailies have consumed 4.7% less newsprint, and total U.S. consumption has fallen 4.4%. The most recent figures indicated that ad linage was flat (0%) year-over-year in March 2002, confirming that ad linage may have indeed bottomed out, PPPC said. In April, U.S. dailies saw their inventories decrease only slightly (-5,000 tonnes) from March and closed the month with 39 days of supply, up from 37 in March and down from 48 days a year ago.

NORTH AMERICAN NEWSPRINT STATISTICS April 2002 (000 tonnes)
	April	% change	Year-to-date	% change
	2002	2002/2001	2002	2002/2001
Production	1,160	-5.2	4,477	-11.3
Shipments	1,167	-3.2	4,367	-12
Demand	954	-2.1	3,649	-10.1
U.S. consumption	870	-4.3	3,325	-4.4
User inventories	1,126	-19.4
Source: Pulp and Paper Products Council, Montreal. From Forestweb.