State of the Paper Industry

Notes on conference call held by Mark Wilde - Deutsche Bank - Equity Research

Mr. Wilde firmly believes markets for commodity grades are tightening. Three primary causes 1- supply side reduction in both North America and Europe; 2 – cost pressure such as gradual increases of fiber, chemicals, and transportation as well as recycled pulp; 3 – Demand in both Europe and Asia improving (not the case in North America). Market that is experiencing best recovery is containerboard - the January price increase of $40/ton is firmly in place; producers have adjusted production downward to maintain a tight market; and demand actually trending up.
Uncoated Freesheet grades have witnessed a 5-6% decline in capacity – look for more shuttered equipment for nonintegrated mills (mills that do not produce pulp) – thus tightening supply. Also, two big events – International l Paper transferring 350,000 tons of uncoated paper to now make packaging grades; and merger of Weyerhaeuser and Domtar they WILL rationalize equipment with closures. Also, Canadian dollar continues to be week and inventories in USA are historically low.
Accordingly, Mark Wilde forecasts slight tightening and a price increase in March / April for uncoated Freesheet.
He was not as bullish of coated papers. Although Europe has decreased imports into USA – Asia has increased. The publication-coated grades (LWC – groundwood) will continue to experience poor demand given the softness in end user markets – magazine, inserts, direct mail, and catalogues.