Grade profile: Uncoated groundwood: No definite time frame for market recovery

Pulp & Paper, Sep 2003 by Mackenzie, Kathryn

GRADE STRUCTURE. Uncoated groundwood papers are higher value than newsprint, but are less costly than freesheet grades. By definition, uncoated groundwood grades contain more than 10% mechanical pulp and varying proportions of chemical pulp and fillers. They are used in a variety of printed products, such as telephone directories, catalogs, advertising inserts, Sunday newspaper magazines, direct mail flyers, business forms, and paperback books.

Most uncoated groundwood papers are considered with higher printing quality, higher brightness levels, smoother surfaces, and higher prices than standard newsprint. Several of these grades are marketed as cost-effective, slightly higher-quality substitutes for newsprint. In the case of supercalendered (SGT papers, they are a lower-cost alternative to lightweight coated groundwood paper.

PRODUCTION/CAPACITY. U.S. consumption of uncoated groundwood grades is expected to increase about 1.9% from approximately 5.5 million tons in 2002 to 5.6 million tons in 2003, says RISI.The growth estimate seems to fly in the face of current market conditions, as the advertising environment has declined over the past two years.Analysts are once again predicting a fourth-quarter uptick, but industry contacts remain skeptical about a full recovery this year.

Shipments of uncoated groundwood grades remained depressed for at least the first six months of the year.Through June, uncoated groundwood shipments in the U.S. were down 19.5% compared to the same period last year. Shipments of most printing and writing grades are down considerably compared to last year, as the U.S. advertising market has not recovered. Most uncoated groundwood producers expect this holiday season to show considerable improvement over last year's. However, a return to a regular advertising environment is not expected until at least mid-2004.

MARKET OUTLOOK. Since about the first half of 2001, most pulp and paper grades have experienced extreme price pressure caused by a lack of demand. Uncoated groundwood producers attempted to increase prices for several uncoated groundwood grades earlier this year, with varying levels of success.

A $60/ton SC-A increase was planned for May 1.As of late July, only $35/ton of the increase was implemented. Contacts said they didn't expect to see any more of the increase implemented. SC-B prices remained flat this year after producers were unsuccessful in implementing a $40/ton price increase in May. That increase for 35-lb SC-B would have been the first in three years. The U.S. average transaction price for SC-B remained at $670/ton on the low end into July. Last year, SC-B prices dropped 9.3% on a yearover-year basis through July.

North American shipments of SC papers were down 0.6% in the first half of this year, compared to the first half of shipments last year, due in part to European producers increasing their share of shipments into North America.

For the first six months of the year, European shipments of SC paper into North America were up 10%, and those shipments represented 19% of the total SC shipments to North America.That's an increase from May's year-to-date total, when European producers had delivered 18% of the total SC paper shipments to NorthAmerica. Europe's SC shipments to North America were strongest for the highest-value SC-A grade, with European shipments of that grade up 13.2% in the first half this year. Demand for SC-B and SC grades continued to be weak. North American producer shipments of SC-A were up again through June by 2.9%, when compared with shipments last year in the first six months of the year.

Combined domestic and European shipments of SC to North America were up 1.3% through June, which marked the third consecutive month of growth.

by KATHRYN MACKENZIE, News Editor