First Look Back at 2006 in Paper?

Looking for the forest products “story” on 2006? How about “supply matters”? While much of the industry saw modest
volume gains in the 2006, the real driver behind industry recovery was “supply”. As the Canadian dollar rose and pulp mills stopped production across Canada, the global rebound in market pulp prices went further and faster than
expected. Many USA mills also curtailed paper production of less efficient equipment . Uncoated white paper producers saw only modest improvement in demand (+0.4% thru November), but capacity shutdowns tightened the market and helped raise prices by roughly $150/ton in the past year. The biggest surprise of 2006 was in recycled boxboard where Cascades almost single-handedly put the market back into balance by acquiring & rationalizing marginal mills.

With the economy now slowing, managing supply should prove to be even a bigger issue in 2007. For the moment, much of the attention is focused on 2 areas: wood products and uncoated white paper. A dramatic drop in the housing market along with new supply has tanked most lumber and panel prices over the past 7-8 months. How quickly will producers move to permanently rationalize supply? In uncoated paper, all eyes are on Domtar. How quickly and how dramatically will Domtar rationalize capacity once its acquisition of Weyerhaeuser's fine paper business is complete? In addition, newsprint producers are almost certainly headed for more consolidation and rationalization in 2007. Supply discipline will also be critical if containerboard producers hope to maintain prices in the face of slowing box demand. Based on late December “channel checks” around the industry, news on both containerboard and uncoated white paper pricing appears a bit better than we expected.
What to look for in 2007 for the industry?
- More rationalization in white paper,
- More consolidation in containerboard,
- More pain in building materials,
-Weyerhaeuser restructuring story,
- MeadWestvaco's land plan.