Pulp and Paper Update

A summary of Mark Wilde of Deutsche Banks recent comments-

The prices for uncoated freesheet remained flat in North America in November, with the exception of envelope papers, which rose $25-30/ton, catching up with the $35-40/ton hike on offset rolls last month. These hikes were driven by increased pulp prices, small increase in demand demand (October shipments -9.3% y/y, YTD -13.1% y/y), and slightly lower October mill inventories (-0.8% vs. October of 2008).
International Paper and Domtar recently announced 800,000TPAof permanent capacity closures by mid-2010, representing 7% of North American uncoated fresheet capacity.A recent example was International Paper just closed PM 6 — a 223,000TPA paper machine at its Franklin, Virginia mill.
Mark Wilde, senior analyst at Deutsche Bank covering the Paper & Forest Products sector, said that IP reported pick-up in demand in the direct mail and envelope converters segments.
"Outside the U.S., we understand that European producers have begun to announce price hikes for January 1. Additionally, we are becoming less concerned about the impact of tonnage from Europe, as we think the level of imports to the US will be smaller than we had anticipated."

Containerboard
 shipments for November as well as prices ($525/ton for linerboard and $500/ton for corrugating medium) remained flat. Two suppliers announced a price increase for January orders.
"When coupled with large supply reductions, expiration of black liquor credits, and a falling U.S. dollar, we expect similar domestic price hike initiatives from International Paper and Smurfit-Stone," Wilde said.
"We continue to believe Smurfit will announce 1.0-1.5 million of closures around year-end. If that occurs, it would push operating rates back into the mid-90's," he added
Market Pulp
Pulp prices rose $30/ton in November, the sixth month in a row in the U.S.A. and seventh in a row in Europe and Asia. NBSK (northern bleached softwood kraft ) rose to $830/MT. The increase was driven by a sharp rise in U.S. spot prices, low mill inventories in the U.S. and Europe, strong Chinese demand, and a weaker US Dollar.
Reports suggest that an additional hike is looming for December, Wilde said.
For China, NBSK rose to $675/ton (from $645/ton). However, anecdotal reports suggest demand in China may slow down in the coming months from inventory overhang — estimated to be around 400-500,000 m/tons.
Further, higher prices are drawing high-cost Chinese pulp mills back into production — as market prices are now well above cash-cost.
Meanwhile, other supply is also creeping back, pointed out Wilde. North American mills considering restarts include: Buchanan Forest Products' 475,000 tpy NBSK mill at Terrace Bay, Ontario; Mackenzie Pulp's 220,000 tpy NBSK mill at Mackenzie, British Columbia; and Fraser Papers' 250,000 tpy NBHK (northern bleached hardwood kraft) mill at Thurso, Quebec

Paper Prices and Shipments Continue to Decline

From a Report by Tom Stundza
Fewer customers' demanding paper have continued to cause pricing to deteriorate.
The Pulp and Paper Products Council has reported that North American printing and writing paper shipments have dropped by almost 19% through October, while year-to-date market prices tracked by Purchasing.com have dropped by about 6%.
The RISI reports that the demand slide may be over in early 2010 since overall October shipments of 2,069,000 metric tons were only 9% below the industry's shipments level in September. However, coated free-sheet shipments have dropped 25% so far this year from 2008 levels while coated mechanical paper shipments are down 24%.
The RISI review of industry data shows that overall mill inventories slipped 1,592,000 metric tons at the end of October, which is 95,000 metric tons lower than at the end of September and 198,000 metric tons lower than a year ago.

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Georgia Pacific Joins Longview Containerboard Pricing

Georgia Pacific just joined Longview with a $50/ton (East Coast) and $70/ton
(West Coast) containerboard price hike for January. This gives the hike announcement more
credibility, as Georgia Pacific is large producer. The company, owned by privately-
held Koch Industries, is similar in size to Temple-Inland and trails
only International Paper and Smurfit-Stone in the North American
containerboard market.

USA Pulp & Paper Producers Report on Gains

In the third quarter of 2009, 26 USA pulp and paper companies reported sales of slightly over $21billion, up 4.5% sequentially vs. 2Q, but down 16% vs. last year. They reported a collective $1.4 billion in net income, including $1.3 billion of alternative fuel credits, up 2% vs. 2Q. Fuel credits were received by 19 companies, lifting their incomes. Excluding fuel credits and other gains, more than half showed a drop in earnings or a marginal increase year over year. Also, production increased in third quater, up 4.6% to 6.7 million tons in September vs. May.

NAPL Forecasts 2010 US Commercial Print Volume Up 2-4%

The NAPL forecasts US commercial print volume to increase 2-4% to $76 billion in 2010, after declining 14% in 2009 to $73.5 billion and declining 4% in the previous two years. Commercial printing reported slightly higher volume in September with fewer printers reporting business as slowing, but the NAPL Printing Business Index still remains low at 36.4 in October. One third of total US printing and writing paper shipments will go to commercial printers, totaling 6.3 million tons, evenly split between coated and uncoated grades

US Postal Service Reports no 2010 Increases for Periodicals

The postmaster general, John Potter, has remarked the USPS will not increase prices for 2010 on First Class, Standard Mail, Periodicals, and single piece parcel post. This is indeed good news for magazines and cataloguers, and , therefore, paper producers.
A quick review of the past 10 years illustrates nearly a 40% increase.
1/2001 +10%
6/2002 +3%
1/2006 +5%
7/2007 + 12%
5/2008 +3%
5/2009 +3.98%
1/2010 -0-

UPS To Increase Pricing

UPS will raise its rates in 2010. The new rates will take effect Jan. 4, 2010.
Ground packages, air express and U.S. origin international shipment rate will jump by an average of 4.9%, according to the company. This is slightly less than the 5.9% announced for 2009 shipments.
The rate increase for air express and international shipments is based on a 6.9 percent increase in the base rate, less a 2 percent reduction in the air and international fuel surcharge index, the company said. The company’s management is concerned with this rate increase in that volume of shipments is down.

Wausau Announces Price Increases

The Wausau Paper Mill just announced it will increase prices for Astrobrights (+$2.00/cwt); Exact Brights (+$2.00/cwt); and Astroparche (+$5.00/cwt).

Newspaper ad sales fall again

With the depressed state of the overall economy, newspaper advertising sales fell 28 percent in the third quarter.
Ad revenue totaled $6.4 billion, according to figures from Newspaper Association of America. It was a narrower decline than the previous period.
Advertising revenue has declined year-over-year for 13 straight quarters killing some newspapers and wiping out thousands of jobs at publications across the country. In the third quarter, print advertising sales fell to $5.82 billion from $8.19 billion a year earlier. Sales of online ads dropped 17 percent from the year-earlier period to $623 million

JC Penney Transitions from Print to Web

JCPenney announced that they will discontinue the biannual "Big Book" catalog and instead will concentrate efforts on creating smaller, more targeted catalogs, online selling, and social media exposure. The current issue is JCPenney's last one.
Reasons for its demise range from the increasing costs of paper and mailing and environmental concerns about wasting paper and success on Internet sales as well as the ability to illustrate products more dramatically.

Big book catalogs have become less relevant as customers have embraced shopping online, (Note Sears stopped producing their big book in 1993 – after 106 years)

Business Publications Fair Well in Down Economy

Mediamark Research & Intelligence’s fall magazine audience report shows that six business titles—Forbes, Fortune, Inc., Smart Money, The Wall Street Journal and The Economist—all enjoyed an increases in total audience and readership when compared to 2008. The thought is consumers are seeking help to navigate the current recession and are turning to business titles.
The Journal reported its audience grow 11.6%, to 3.4 million; Forbes’ grew 11.5% to more than 6 million; Fortune’s rose by 9%, to 4.1 million; and The Economist’s audience grew 6%, to 2.8 million.
However, the bad news for these publications was that although readership was up, advertising pages were down as are total pages!
Another reason for coated papers to remain depressed with respect to demand.

Paper Markets

The accumulated effect is all paper volume continues to be depressed, although month over month shipments and comparative figures versus 2008 appear to be declining at a decreasing rate - maybe the 'bleeding' has slowed? End user demand for coated papers appears to be stable for November and estimates for December appear stable as well. Coated Free Sheet was down 7% in October (vs October 2008) and down 23.1% for the year through October; Publication coated was down 4.2% in October (24.9% for 2009) and Uncoated WoodFree down 10.3% for October (13.6% for 2009).

Europe Seeing Pulp Prices Rise

Pulp inventories are at the lowest levels in over 10 years throughout Europe, estimated to be 750,000 tons, down 8.5% in October vs. September, and down 51% vs. 2008. As a result, price increases are happening worldwide, with NBSK pulp at $800/MT in Europe and SBSK at $760/MT. China’s increased in demand for pulp is effecting all markets.

Pulp Market Remains Strong

Pulp prices are up, inventory is down, much equipment is still ideal,and Chinese demand continues to be strong .... all components yielding a seller's market and causing most buyers to forecast continued pricing pressure. The USA level for NBSK is $830/MT. Coy Paper continues to monitor for shuttered equipment to come back on line - once this occurs, pulp should prove to be more available.

Will Web Browsers Pay for online Information?

Excerpts from Forrest Research Study

New research from Forrester has found that while a minority of consumers is willing to pay for online content, not all pay models are considered equal.

The findings are relevant today when just about every print publisher is hunting for ways to offset declines in ad revenue by shifting their revenue burden to readers who are used to a world of free online content.

While 80 percent of consumers said they would not pay for access to online content if the publisher erects a pay wall, equal amounts—8 percent—said they preferred an online subscription and multichannel subscription. Only 3 percent said they’d prefer micro payments.

That suggests publishers should keep offering free, ad-supported products to the vast majority who won’t pay, while giving those who will pay a choice of payment methods for access to premium products, says the Nov. 10 report entitled "Publishers Need Multichannel Subscription Models."

Favorites were outlined as follows
37% Web site
14% portable devices like mobile phones
11%, laptops and netbooks
10 % print publication via an emailed PDF.
3 % e-readers like the Kindle
Notably, fully 44 percent said they preferred none of those options.

Who will pay for online content? The study found that people who are college-educated, technology optimists and higher earners are more likely to pay for online newspapers. Age was barely a factor in willingness to pay.

Age was a bigger factor among those who are willing to pay for online magazines. That group also is more likely to be college-educated and favoring technology. Income is barely a factor among this group, though.

Paper Companies Asking for Bigger Trucks

Another paper producer, AbitibiBowater, has joined International Paper and others in a request to allow the Federal Government to allow larger trucks on USA highways. The bill being reviewed is called the Safe and Efficient Transportation Act, a bill that would allow trucks outfitted with an extra axle to carry more weight on interstates.
In AbitibiBowater's case, just for its one mill in Calhoun, TN, it would eliminate 58 trucks per week and save $3 to $3.5million each year. The bill would also reduce the amount of trucks and, therefore, pollutants emitted.

Kraft Linerboard Price Increase

Longivew Fiber, a smaller producer (#12 at 600,000TPA), just announced a $50/ton price increase for shipments after January 1 on kraft linerboard and corrugating medium. The industry requires International Paper and Smurfit-Stone to follow for this new price level to occur. The mills have been disparate for a price increase because fiber costs are up and the black liquor credit will be gone. The challenge is soft demand - October box data show continued weak volumes.
Shipments were down 5.8%, although inventory down as well.

More Newspapers Consider the Web

A recent American Press Institute survey found that 58% of newspaper respondents are considering initiating paid access for currently open/free news and information online, and nearly 25% expect to implement a paid strategy in the next six months. This is a big change, considering that 90 % of the responding newspapers currently do not charge for content, and only 3% currently have a paid-only site.
But in Publishers Need Multichannel Subscription Models Forrester finds that “most consumers (80%) say they wouldn’t bother to access newspaper and magazine content online if it were no longer free (no surprise), and the rest are split about how they’d like to pay for content.

AbitibiBowater decides NOT to curtian Equipment

AbitibiBowater will delay curtailment of newsprint and uncoated mechanical paper production in three facilities, adding 60,000TPA through year-end. Management reported on improved demand.
-Clermont, QC, the 125,000TPA newsprint PM #4 will operate through December, instead of being idled Oct. 31st.
-Fort Frances, ON, the 70,000TPA uncoated mechanical (SC-B paper)PM #6 will run an added 4-6 weeks.
-Liverpool, NS, the 250,000TPA Bowater Mersey newsprint mill will run at full capacity through 2009, instead of at 50% capacity.

Glossy Catalogue Pages Still Sell Products

Over 17billion catalogs were mailed to American households last year, 56 for every American. This means the average catalog retailer sent 21 million copies, one every 26 days. Although the percentage of resulting sales keeps declining, currently 1.3%, catalogs are still the largest revenue generator for direct marketers, and the catalogue is beginning to drive significant traffic and sales to the website. Most catalogues are printed on 'glossy' paper with full color photographs of products and plenty of text.
Although most of the paper for these holiday catalogues has already shipped, the paper market is still depressed. Unfortunately, the first quarter has never been a good period for coated shipments - so not much hope in sight for a near term turn around!

Catalyst Mill in Elk Falls may Never Open

The Catalyst Paper Mill on the Campbell River in Elk Falls, Canada may never reopen as a result of the current economic challenges and a trend to fewer people reading newspapers. The Western Canada plant had employed over 1000 workers and produced 700 tons of newsprint every day for newspapers. The mill management sited online news had severely eroded print media’s readership and cheap paper now being imported from China. The demand for newsprint is down and many mills have become shuttered.

China Reports on Pulp and Paper

China imported almost 12million metric tons of pulp so far this year, up 42% vs. last year. Paper and paperboard imports decreased 11% to 2.72 million tons. In October, pulp imports dropped 21% to 1.07 million metric tons, and paper imports were down 13% to 270,000 tons. (Source: General Administration of Customs of the People’s Republic of China)

Hearst looks to the Web as an Ally

In an effort to boost subscriptions (especially when 1H2009 newsstand sales are down nearly 12.5%) Hearst Magazines is looking to the web. They forecast that as much as half the subscriptions in 2010 might come from the web.
The publisher’s digital group reported that advertising revenue from their sites is estimated to grow 20% for 2009.

Conde Nast Advertising Pages Down

Conde Nast has made several cost cutting initiatives during 2009, including shedding staff and publications. This was mainly a result of advertising revenue declining by nearly a third since last year - losing a total of 8,359 pages across all publications.
Recall, Coy Paper reported the closure of Gourmet, Modern Bridge, Elegant Bridge, and Cookie. The worst hit of the surviving magazines includes Architectural Digest – down almost 50%; “W” down 46%; Traveler down 41%. On the brighter side, Glamour increased over 6.5%.

Meredith Publishing appears to be doing the best because of its mass-market advertisers. Note, Conde Nast appeals mainly to luxury advertisers.

As reported in an earlier Coy Paper release, 3Q2009 advertising pages fell an average of 27.3%.

Some Thoughts for 2010 on Paper

Given the massive downtime in all paper markets with nearly every mill participating in machine closures, demand might just be matching supply in the very near term. Paper has been readily available; prices are depressed, and, suffice it to say, it has truly been a ‘buyers market’. However, if the federal stimulus package takes hold and curtailed supply allow operating rates to go back into the mid 90s, the producers of paper could once again control pricing. Clearly, raw materials such as pulp and energy have increased in price; most likely the ‘black liquor ‘ credit will end December 31, 2009…. a current ‘life support’. We think 2010 could be snug – and suppliers will advance pricing throughout the year. The Coy Paper team strongly endorses buyers should begin to negotiate 2010 programs now.

No More Metropolitan Home Magazine for Hachette

Hachette Filipacchi Media reported the closure of Metropolitan Home after the December issue. Elle Décor will now be the only shelter publication for this publisher. Many similar magazines have been closed because of the housing market collapse and economic downturn including Meredith’s Country Home, Time Inc.’s Cottage Living and Condé Nast’s Domino.

Metropolitan Home is the second shelter title Hachette has folded in the current downturn after Home, which closed in October 2008.

Coated Paper Companies Waiting on the Asia Decision on Dumping

The preliminary determination from the Department of Commerce should be out during this month, November 2009. Recall, we reported on New Page and other coated paper producers requesting that the US Government review the possibility that China and Indonesia governments were subsidizing paper mills and allowed for ‘dumping’ paper into the USA at below cash cost to produce. This includes coated paper over 80GE brightness.
The total imports of coated papers had increased from 131,687 tons in the first 6 months of 2008, 185,422 in the first six months of 2009 – an increase of 40%. During this same period USA domestic producers estimated their shipments were down 38%.
China and Indonesia combined are estimated to have a 30% market share here in the USA.

Go Green and Save

Although paper produced from post consumer recycled fibers may cost more than virgin paper, there are still many green initiatives that can save money if you can not afford this grade. Note, the paper industry’s objective by 2012 is to provide 60% of paper produced from recycled fiber (compare to Glass – 24% recycled; Plastics 7% paper is among the best at recycling).

-While it is true, paper manufactured from ‘post consumer waste’ is more expensive,; however, in many cases paper with recycled pulp (pre-consumer) may cost the same.
-Work with your printer to reduce paper wasted on make ready, bindery, and trials
-Reduce the amount of ‘free office copies’
-Confirm you have the correct roll or sheet size that allows for the least amount of waste; also, review your print layout for maximum coverage of sheet
-Reduce the basis weight of both the cover and body stock (switching from 80lb to 70lb yields 12.5% less paper – save even more if you mail)
-Ship by rail instead of truck
-If you are purchasing a recycled paper, now is the time to negotiate long term pricing. Paper is at an all time low today and therefore is a good time to establish benchmark pricing. (Note: Insisting on firm pricing with no increase most likely is not prudent !)

Some Advertising Performance Statistics

The Audit Bureau of Circulations reported on 1H2009 advertising and we share a few

BusinessWeek
Total Circulation (09/08/%change) 921,423…….925,225….-0.4%
Single Copy (09/08/%change) 27,953….29,917….-6.5%

Forbes
Total Circulation (09/08/%change) 913,655….926,899…-1.4%
Single Copy (09/08/%change) 27,172….32,096….-15.3%

Time
Total Circulation (09/08/%change) 3.27M….3.29M….-0.06%
Single Copy (09/08/%change) 100,382….95,950….+4.6%

Newsweek
Total Circulation (09/08/%change) 2.64M….2.65M….-0.03
Single Copy (09/08/%change) 64,866….82,756….-21.6%

Myllykoski Sells Paper Mill

Myllykoski has agreed to sell its Alsip Mill in Illinois to the Watermill Group. The Alsip mill will be renamed FutureMark Paper Company, claiming to be the only US facility able to produce 100% recycled coated paper for magazines and catalogs. The mill can also produce a premium #4 grade and food label product that is recycled. Total production of coated publication paper is 135,000TPA.

One Newspaper Decides to Increase Costs!

The San Francisco Chronicle will become the first daily newspaper to switch from newsprint to a glossy publication paper. The glossy paper will be used on the front page and on the first page of most sections, along with select inside pages. The objective is to secure more high end advertisers (and their scarce dollars).

Finland Reports Reduced Paper Shipments

Paper shipments in Finland are down 17% versus the 3Q08 at 2.8million tons. Magazine papers were down 25% and printing and writing grades declined 10%.

Raw Material for Pulp becomes More Expensive

Due to poor new construction in both the USA and Canada, residual wood chips historically allocated to the paper industry for pulp have also declined. Lumber production in Canada is down 50% over the last 3 years, thus creating a true lack of chips and forcing pulp mills to consume more expensive 'round wood'. The Wood Resources Group estimates that fiber costs in Canada for pulp is currently 70% higher than for the USA producers.

Bloomberg Reviewing a 'paid for' Web Site for BusinessWeek

The new owner of BusinessWeek, Bloomberg, continues to be confident that printed magazines will survive and accordingly, announced they produce a BusinessWeek that is bigger, glossier and more international. At the same time, the new owner reported they are exploring a strategy to charge for content on their own Web site.
Bloomberg plans to keep most of its content free while on its web site, and in time, create deep, vertical content areas that paying users could access for roughly $100 a year.

US House Reviewing Paper Producers' Tax Credits

U.S. House of Representatives are trying to raise more money for the nation's health care by keeping Weyerhaeuser, Temple-Inland. and other manufacturers of pulp and paper from claiming up to $24 billion in tax credits.
The proposal would bar the companies from using an Internal Revenue Service ruling made public last month to claim a $1.01/gallon tax credit for producing biofuel from so-called black liquor, a wood byproduct from pulp making.
I am sure the paper industry will fight this. In many cases, it is the tax credit that creates the difference between some producers surviving or closing their doors and letting employees go.

Quick Update on a Few Markets

Market Pulp producers have started to announce yet another price increase. The new pricing is slated for November shipments, but will most likely not be implemented until December. The $30/mt pop will bring NBSK to $830/mt in North America ($700/mt for BEK).

Transaction prices continue to climb for Uncoated Free sheet, although cut size / business papers remains somewhat flat at $1010-1060/t; 50lb rolls are now $845-865/ton. Envelope papers also up $40/ton

Containerboard pricing remains flat, but with pulp and other raw material costs increases, the producers must do something. There has been equipment curtailment, which will assist the mill's efforts to increase pricing.

Verso Paper Recieves Federal Stimulus Funding

Verso Paper Corp. was awarded $9.3 million in federal funding through the Department of Energy from the American Recovery and Reinvestment Act for infrastructure improvements at its plants in Maine and Minnesota. The company will install waste energy recovery equipment at its plants in Jay and Bucksport, Maine, and one in Sartell, Minn., as part of 12 waste energy recovery projects.

Printer's September Sales Down

September is generally the first of commercial printing’s three biggest months; however, printing shipments dropped 11% to $7.5 billion vs. last year, the lowest level in Sept. since 1994.

No New Sustainability Efforts Seen

Notes for a Robert Half Survey-
New survey of most USA businesses indicate few are planning to introduce new eco-friendly programs - especially if it costs money. The majority of companies are quick to add that they have already included many 'green initiatives' and feel they are doing their part. The survey concluded by stating that end users are not willing to pay more for an environmentally friendly product (although in many cases it DOES cost more to produce).

December Advertising Magazine Pages Looking Up

Revenue from advertisements in magazines has been a real challenge in 2009, but several publishers are reporting good numbers for December issues.
-Time Inc.’s titles, Real Simple, Cooking Light, and Southern Living will run significantly more ad pages vs. last year.
-Conde Nast’s Glamour is up 5%, with Wired posting much smaller declines and many advertisers returning.
-Martha Stewart Living Omnimedia’s November issue was down less than 5%, and their December issue has a triple cover with inside cover ads.
-Hearst’s Cosmopolitan, Country Living, Good Housekeeping, Marie Claire and O are all posting bigger Dec. issues. Smaller declines are an improvement this year, when advertising pages fell 27% Jan-Sept 2009.

Paper Maker Says Demand Up For Recycled Paper

Like so many other paper producers, Longview Fiber Paper and Packaging Inc.had to let employees go due to poor sales. But recently, the company introduced FibreGreen, which is made entirely with recycled paper and is used for grocery bags and fast-food sacks. The company’s sales are now doing fine!
Longview Fiber obtains 40 percent of the material used to make FibreGreen from paper recycled by consumers. The mill’s challenge initially was 100% recycled paper is often relatively thin and weak, but Longview developed technology to maintain quality. Most of the 60% balance comes from paper products rejected by the mill.
A 100% recycled product such as FibreGreen is the type of product that customers are demanding. A couple of success stories so far include Whole Foods Market becaming the first grocery retailer nationwide to switch to 100 percent recycled bags. Starbucks is pushing to increase its recycled packaging, and so is the nation's largest retailer, Wal-Mart..
FibreGreen is manufactured on the company's No. 12 paper machine, which produces about 400 tons of paper per day. The 100 percent recycled paper was about one-fifth of the machine's September output.

BusinessWeek Quotes P. Scott Vallely on Paper Industry

As quoted in the October 9, 2009 BusinessWeek article called Kill a Newspaper, Save a Tree? Not Quite
The article reported on the challenges that the paper industry is experiencing – equipment shutdowns might save a tree or two – but its killing employment.
Many of AbitibiBowater's rivals "are losing money or breaking even," and have had to shutter operations temporarily, if not permanently, says P. Scott Vallely, CEO of Coy Paper, a specialty-paper distributor in New Canaan, Conn. "They're surviving by issuing more bonds and taking on more debt, which isn't sustainable."

Kohl’s the Boosts Mailings and Digital Ads for Holiday Season

In an attempt to gain share of limited pockets for the consumer, Kohl’s will launch their holiday campaigns right after Halloween, earlier than usual. They will increase spending on digital ads by 25% and will increase customized mailings, i.e. jewelry, general gift guide, men’s holiday gift guide based on past purchase behavior. If competitors follow, the stronger media presence will assist the paper industry with increased paper demanded as a result of the additional mailings.