Clear or cloudy horizon?

Pulp & Paper, Aug 2005 by Cook, Chris, Mies, Will, Rudder, Greg, Smith, Bryan, Vasconcellos, Sandra

Spot prices for U.S. 42-lb kraft linerboard in the East also fell in the first half, and the range ($370-$410/ton) created a larger-than-usual $45/ton differential between linerboard open market contract and spot levels.

The second half outlook this year from buyers and sellers is mixed. Producers count on holding up prices, partly from machine downtime, and possibly even returning with a price increase proposal during the historical busiest U.S. box shipment period, from mid-August through mid-November. Buyers expect linerboard prices will fall again in the second half.

Producers continued to carefully manage inventory, with mill and box plant stock at the end of May totaling 2.55 million tons, down 138,000 tons since January.

COATED PAPERS

Mechanicals solid; freesheet slow

The coated paper market in North America divided into two markets this year, with coated mechanical tightening and coated freesheet suffering growing sloppiness.

The December 2004 shut of UPM's Miramichi, N.B., lightweight coated mill removed 495,000 tpy of coated mechanical production representing 8% of North American capacity. Entering 2005, mill operating rates were in the mid-90's. When wildcat strikes in Finland provoked a lockout across the entire Finnish pulp and paper industry in mid-May, fully 25% of the combined coated mechanical capacity in North America and Europe was out of action.

As a result, a $60/ton coated paper increase in April was implemented quickly. With no settlement in sight in either Canada or Finland, all the major North American coated mechanical producers announced July increases of $35-$45 per ton. As the peak U.S. catalog printing season was approaching, buyers had few options but to accept it.

The second half this year turns on the impact of idled capacity returning to the market. Settlement of Finland's labor dispute in June likely averted a further coated mechanical price hike in the fourth-quarter of the year, but European customers are liable to have first call on resumed supplies. With shipments taking up to two months to reach North American destinations and the Miramichi mill still down into early July, prices could hold at their July/August level.

In contrast to coated mechanical, coated freesheet capacity in the U.S. remained underutilized this year, in part because of surging imports from Asia. The strike in Finland had only a small effect on this market and operating rates averaged only 86% in the first four months of the year. Grade substitution had little impact, and producers are trying to salvage whatever part of the April coated freesheet increase they can get for the rest of this year.

Demand for supercalendered (SC) grades increased 12% in the first five months this year and mill operating rates averaged 98%. Manufacturers announced a $60/ton price increase on all SC grades in April, but SC is mostly sold on fixed-price six- or 12-month contracts, so until after July only the small spot price market was affected. A second increase of $40/ton slated for July 1 by some manufacturers hiked non-contract spot market transactions, mainly due to the reduced capacity from the Finland mills' strike. Finland supplies about 13% of U.S. SC paper demand.