Paper Shipments Tumble as Producers Slash Supply to Match Falling Demand

Associated Press -- Newly released figures on paper shipments confirm the sector's rapid contraction as producers accelerate capacity cuts in to retain pricing power, analysts said.
Goldman Sachs analyst Richard Skidmore, in a note to clients Sunday, said U.S. printing and writing paper shipments fell 12.7 percent in October year-over-year.
Shipments of so-called coated freesheet, a glossy paper, dropped 15.4 percent, and shipments of coated groundwood, a lower-cost grade of paper used in catalogs and advertising inserts, declined 19.4 percent.
"Responding to accelerating demand declines, producers have quickly acted to permanently close and temporarily idle capacity. Producer efforts to balance supply with demand have been impressive," Skidmore wrote.
International Paper Co. on Friday closed its pulp mill in northeastern Louisiana, terminating 550 employees. International Paper, based in Memphis, Tenn., earlier this month began what was expected to be a seven-week shutdown at its Bastrop mill. But Friday the company said the shuttering would be indefinite.
And early this month, Weyerhaeuser Co. said it was closing a Georgia mill indefinitely due to softening engineered wood product demand amid the ongoing housing downturn.
Deutsche Bank-North America analyst Mark Wilde termed such supply cuts "aggressive," though perhaps not sufficient to eliminate pricing pressure.
"The key issues will be margins," Wilde said in a research report late Friday.
Besides supplies of coated freesheet and coated groundwood, other grades of paper whose supplies are being reduced are uncoated freesheet, uncoated groundwood, containerboard, which is used to make cardboard, and market pulp, a raw material for various grades of paper.
"We forecast the next few quarters to be challenging for the industry as demand deteriorates, downtime rises and prices move lower," Skidmore said.
He expects prices for uncoated freesheet to decline through the middle of next year.