White Birch Announces Bankruptcy

As we assumed, White Birch joined AbitibiBowater in announcing they will file for bankruptcy protection. White Birch is the second-largest newsprint manufacturer in North America with newsprint mills in Quebec City, Riviere-du-Loup and Gatineau. The company expects operations to continue producing paper for end users.

Printing and Writing Papers Shipments Up in January

From recent report by American Forest and Paper Association

The AF&PA reported that USA printing and writing paper shipments went up 9% in January vs. 2009. This is the third consecutive monthly increase when compared to the year before. All paper classifications grew, with coated fee and groundwood - publication having double-digit growth. US purchases (shipments + imports - exports) also went up by +4%, and inventory levels increased 1%, by 9,800 tons from December.

RR Donnelley to buy Bowne

RR Donnelley will acquire Bowne & Co.for $481Million and is expected to close in the second half of 2010. Bowne had revenues of $675Million in 2009 and offers digital print services for healthcare, financial services and others.

Another Prospective on the Paper Industry

Most CEOs running pulp and paper companies believe the ‘worst is over’ and now look for a slow recovery over the next 2+ years. Most admit the industry cycle is mature or even declining and much of the lost demand may not return. The paper, pulp, and packaging industries all need to review their models for long term survival. The last two decades illustrated a trend of mergers, acquisitions, consolidation, and plant and equipment closures. This assisted with the over supply challenge, but if demand continues to be decreasing, a transformation must occur.

The paper companies will need to review other segments and models to be viable as a long term entity. Areas of focus perhaps should include, Chemicals, water treatment, energy, logistics, forest management, and recycling. The paper companies all currently have expertise in these areas as a normal course of business. Now, maybe they should evaluate if these areas could generate new streams of revenue and recreate a ‘new’ entity.

Printers Upset at Anti Dumping Case

The USA printing industry continues to lobby against the coated paper manufactures that have asked the US International Trade Commission to levy a tariff on Chinese and Indonesian producers. Overall demand for printing is down and the continued competition from electronic communication is fierce. Reports confirm over 73,000 workers in the printing industry lost their jobs in the past 2 years. The printers feel that the imported paper maintains a competitive market, and without China and Indonesian paper, the cost of the largest component for printing costs, would increase. Increased raw material costs will further drive clients away from the printed media and potentially close down printers.
The printing community is fighting to keep the imported coated paper coming into the USA without a penalty tariff.

PaperlinX Profits Down

We often report on the financial conditions for the paper and pulp producers as well as printers, but the entire supply chain has been negatively effected. Poor demand from the printing community negatively effected the latest set of financials from global paper distributor giant PaperlinX. The merchant's sales for the six months to December 2009 fell across the board, with Australian, New Zealand, European and North American operations showing double digit declines; meanwhile, Asia did illustrate some positive results.

We reported earlier in the year, that PaperlinX was successful in the sale of their Tasmanian paper manufacturing operations to Nippon Paper; however, the company is still looking to sell its Burnie paper manufacturing plant, and, if no buyer is found it will close in June 2010.

For the first half of the 2009-10 financial year PaperlinX reported a loss of $175Million, the bulk of this coming from costs associated with its exit from paper manufacturing. The company recorded a 28% drop in group revenues to $2.7Billion, as well as a 24% drop in paper volumes, which the company attributed to its exit from paper manufacturing operations in Australia and the impact of weak markets.

Container Board Pricing and Market Update

International Paper just announced a $60/ton price increase on containerboard for shipments starting in April. We assume fellow producers will follow such as Temple-Inland, Packaging Corp, Rock-Tenn, Greif, and Sonoco. Also, Boise and Kapstone.

Although inventories for containerboard are down from historical highs for the month of January, they DID increase from January 2008. Prices have increased, but demand for boxes appears stagnate, at best. In fact, Deutsche Bank reported shipments were down over 4% and inventory rose 67,000 tons. The past price increase went through, will the April pop also be successful?

Reader’s Digest Out from Chapter 11

The Reader’s Digest Association has officially emerged from Chapter 11 protection. As part of its restructuring, the publisher reduced its debt by 75% (from $2.2 billion to $525 million). Holders of senior secured debt transferred ownership of Reader's Digest to the lender group and will effectively receive equity.

Paper Producers Continue to Look for Price Increases

Most of the major paper sectors have announced price increases, and end users are paying the new price. It appears many of the raw materials including chemicals, pulp, energy, and transportation have all increased, and the infamous black liquor credit is gone. As we outlined in past releases, the forecast will be a slow one for paper producers to recover. Demand continues to be soft and the industry continues to have too much capacity.

Several Magazines Rethinking Audit Bureau of Circulations

The current challenging magazine industry on publication's revenues has resulted in many reviewing their membership to the Audit Bureau of Circulation (ABC). For decades, ABC was considered the bible of auditing over 750 consumer magazines for circulation. However, over the past few years, about 100 of the smaller (or shuttered) have dropped ABC. The most common reason relates to the $10,000 fee ABC charges each year for the audit.
Advertising pages have dropped some 23% from 2008 to 2009, and significant revenue along with it. Many of the smaller publishers are cutting cuts to merely survive.

Anti Dumping Case Hearing March 1

Appleton, SAPPI, and NewPage continue their efforts with the USA International Trade Commission to review coated paper imports from China and Indonesia. The USA paper producers would like the government to impose a 100% tariff because they feel the Asian governments are unfairly subsidizing the coated paper producers. Most believe the final ruling will not be awarded until the Fall of 2010; however, the USA Dept. of Commerce is to make a ruling by March 1.
Many of the domestic printers are fighting this hearing for fear that if the results support the USA producers, coated paper will cost more. During the past 18 months, although the paper markets have been poor, there were no significant increases in imports. Printers also cite domestic coated manufactures have not witnessed their market share to decrease.
Printers already are experiencing a challenge just with poor demand, the fear of coated paper increases will only produce a more depressed industry.
Comments?

UPM Kymmene Reduces Workforce

The world’s largest paper producer of magazine papers, Kymmene, just announced it will temporarily reduce its work force at both the Kaukas and the Kymi mills in Finland. Management cited poor demand for the companies paper products and an objective to improve costs. UPM Kymmene has 64 plants in 15 countries.

Newpage Paper will Restart Paper Machine

The NewPage mill in Rumford Maine recently started up a paper machine that was shut down in September. This machine manufactures coated paper for magazines. The mill is now operating all equipment at the Rumford location

Some Mills Announce Coated Paper Price Increase

Lately, pulp and transportation cost increases have forced many mills to evaluate paper prices. Sappi will increase prices on coated woodfree paper sheets and rolls by 10% starting with March shipments. Also citing increased costs and unsustainable margins, Lecta, the second largest European coated woodfree paper producer, announced a 9-12% price increase on coated woodfree paper, effective with deliveries as of March 15th.

Penton Media Files for Bankruptcy

The publisher, Penton Media, will reorganization under Chapter 11. Penton Press is the parent company of such trade magazines as American Printer and Paper, Film & Foil Converter magazines. The publisher had more than $1 billion in liabilities and the assets reported were between $500 million and $1 billion, according to court documents.

Fraser Paper Reduces pay to Workers

The workers at the Fraser Paper Madawaska paper mill in Maine agreed to have their paychecks cut by 8.5% as part of a new contract mill management says is needed to keep the facility from closing. This initiative will save the company $4Million in annual savings.

Meredith Magazine is on Top

Reader’s Digest had historically controlled the top spot for the biggest selling consumer magazine. The Audit Bureau of Circulation’s latest figures reveal that
this is no longer the case.

Meredith's Better Homes and Gardens now holds that distinction, with a total circulation of 7.6Million, according to the ABC covering the June-December 2009 period. It should be noted, Reader’s Digest, now No. 2 at 7.1 million, deliberately cut its circulation in recent years to improve its profitability.

15 Companies to Obtain FSC Certification on Forests

15 companies recently obtained Forest Stewardship Council certification for their management practices covering a total area of over 1.5Million hectares. Applicants, including AbitibiBowater, Domtar, and Kruger among others. The Rainforest Alliance’s Smartwood Program conducted the assessment. Sustainability and environmentally friendly initiatives continue to be important programs for the Pulp and Paper industry.

Can Direct Mail compete with Digital Marketing?

The major marketers are learning that traditional (mailed) direct mail becomes a more successful campaign when combined with digital marketing. The final figures for 2009 are not yet in, but, in 3Q 2009, US consumers received 5.2 billion pieces of direct mail, a drop of 27% from 2008. Marketers are finding that with reduced spending budgets they are sending fewer pieces, but more targeted. The companies are complimenting these efforts with emails and witnessing increased responses.

A few Words from Barclay's Paper Analyst

From a Pulp and Paper Week Report
Barclay's Capital analyst, Peter Ruschmeier, estimated US uncoated mechanical paper (groundwood containing paper used in inserts, paperback books, and certain magazines) is to increase 22.6% in 2010; coated freesheet to rise 14.4%; coated mechanical (publication papers) to be up 13.2%; market pulp up 2.0%; and uncoated freesheet up 1.1%; with newsprint down 7.2%. Many industry observers feel that demand will increase in 2010 and rising costs will squeeze margins. Most pulp, paper, and board producers will focus on raising selling prices to offset margin pressure.

Coy Paper might take some exception with the aggressive growth figures on both uncoated and coated groundwood papers as well as coated free sheet. Unless advertising dramatically improves, I would be hard pressed to forecast a growth of even half these figures. We DO agree that mills will attempt to increase pricing (for all grades) throughout the year in an effort to stay ahead of the cost curve.

Finally, Some Good News for Magazines

After a punishing first half of 2009 for magazine sales at the newsstand, many of the industry’s biggest newsstand sellers witnessed sales declines begin to at least level out in the second half of the year.

Single copy sales declined 12.4% in the first six months of the year. It should be noted that results were partly affected by a disruption in the wholesaler delivery chain which led to delays in getting issues to stores. The challenging economy is also at blamed for a decline in single-copy sales.

In the second half, though, single-copy sales declines narrowed for big newsstand sellers like People, In Style, Glamour, Family Circle and Cosmopolitan.

Not all shared in the improvement. Good Housekeeping’s newsstand sales fell nearly 30% on top of a 17.7% decline in the first half. Vogue was down 15% and Men’s Health, 14%.

Printers Beware of Continued Pressure for 2010

Dr. Joe Webb, director of Economics and Research Center, said “2009 was a tough year for printers, and the trend of displacing print with new media by retailers and others continues. The longer the slow economic times last, the more entrenched these new media budget allocations will be.” Dr. Webb emphasized that print businesses will continue to be under pressure to merge and consolidate because of these shifts. “The most successful print businesses had specialized equipment and processes that were targeted to the exact needs of those markets, such as magazines, catalogs, and newspaper inserts. The higher profits those organizations enjoyed for many years were the rewards they had for concentrating on those niches. It wasn't until those niches started to contract that the printers realized that specialization had risks, which were often underestimated, that quickly eliminated those rewards.”
Total Shipments for printers for 2009 for Year are $88 Billion

Top Printers for the USA Government

The USA Government Printing Office (GPO) awarded bids to more than 1800 printers in 2009 for $425Million (down from $421Million in 2008). Top five include
NPC (News Printing) $29.3Million
RRDonnelly $27.0Million
Monarch $19.5Million
Gateway Press $17.5Million
SourceLink $16Million

Time Magazine Down

Time Warner reported that its publishing unit, Time Inc., generated $3.7 million in revenue in 2009, down 19% from 2008. Those losses were fueled largely by a 22% or $541 million decline in advertising revenue. Meanwhile, subscription revenues declined 13% for the year and other revenues fell 24%.

Standard and Poors Outlines Slow Recovery for Paper Industry


S&P recently generated a report that outlined a slow recovery for companies involved with USA forest products. 
The document reviews a slight improvement in outlooks for 60% of forest sector companies. This report is titled “The US Forest Products Sector is Entering a Slow Recovery” and says that the positive trend reflects significant debt reduction that these companies achieved, despite poor economic conditions. They believe that the economy and housing markets have hit bottom and that the sector’s credit profile will improve over the next few quarters.
I, on the other hand, am not as bullish, especially if one is focused on the pulp and paper segment of the forest products industry. There will be some improvement, assuming the economy picks up, but debt reduction will be a challenge.

International Paper Posts Loss - Domtar Reports Profit

The International Paper Company, the world's largest pulp and paper producer, reported a loss for the forth quarter of $101million due to a decline in sales. The Industrial Packaging unit dragged down the balance of the corporation, posting a loss of $391Million.
Meanwhile, Domtar experienced strong pulp sales and benefited from recent pulp price increases. The company announced a profit of $124Million for the forth quarter (compare to a loss of $676Million 4Q2008).

AF&PA Reports on December Paper Shipments

As announced by AF&PA Report
In December, paper output in the USA was 2.9Million tons, up 3.3%, yet for the year, paper output was down 13%. Coated paper improved 12.8% for the month, but was down 18.7% for the year. Uncoated mechanical grades increased 1.4% in December, but dropped 20.5% for the year. Uncoated freesheet was up 1.9% for the month and down 11.1% for the year. This is the second consecutive month of increased output vs. 2008.

R.H. Donnelley is Now Dex One

R.H. Donnelley changed their name to Dex One and also announced it will emerge from Chapter 11. The 124-year-old local business directory publisher and marketing company also provides business search engines and pay-per-click networks. The new name will tie into their search website dexknows.com. The company is attempting to rebrand itself as a search engine company.

Paper Industry in North America

The paper industry continues to produce fewer tons each year. Not a healthy trend!

The last decade has not been friendly for the North American packaging paper producers, considering the demand peaked in 1999 at nearly 56Million tons. Several believe the market will have fallen below 46Million tons in 2009, when the final numbers come out. Meanwhile, the producers for graphic papers last witnessed very good growth in 1970 and the 80s and than 90s- but the market topped out at 50Million tons in 2000. In 2001, the demand fell to about 46Million tons – and managed to stay at this level until 2007. Between 2007 and 2008, demand fell 15% to 39Million tons and most forecast 2009 will end up at slightly under 32Millions tons (19% down).
The biggest element in this decline was lack of advertising (especially for Auto, Financial, and Real Estate). It is predicted that the next few years will generate a flat demand, and than decline, beyond 2011. One study indicated that this segment might be down to 25Million tons by 2024. Newsprint could well be the largest component of this decline.

Corrugated Box Prices Increase

RockTenn, Graphic Packaging International, and Sonoco have all announced an increase for corrugated box prices by 10 percent and corrugated sheets by 12 percent, effective with shipments on or after February 22. The industry had previously increased the price for uncoated recycled paperboard by $50/ton and bleached board products by $40/ton.
The converters have all absorbed a 40% increase in the cost of recovered paper.
Another cost pressure is the price announcements for Old Corrugated Containers (OCC)increasing in January from $80 to $110/ton.

All Uncoated Producers Advance Pricing

Consistent with our previous releases, as of today, Domtar and NewPage
announced $40/ton price hike on its offset grades, effective Feb 22.
Others, including International Paper, Glatfelter, Finch, Flambeau, and Grays Harbor have already announced similar price hikes on offset grades. Georgia Pacific, Boise, Suzano, Soporcel have limited their efforts to cut-size office grades. The continued rally in pulp prices is pressuring margins at nonintegrated mills.

Will Books Printers loose to Electronic Devices

Verso Digital recently presented their findings on a survey based on millions of Internet users and found that avid readers forecast they will split purchases between print and electronic. Most of the 'avid' reader group is over 45 years of age (66%). Only 28% of those in the 18+-age bracket are avid readers. 27% of avid readers are not willing to pay more than $10 and 37% not sure how much they would pay.
Apple just announced the IPAD device. I note Apple has revolutionised computers, cel phones, MP3 players - and could now create lure to grow the audience for EReaders.
In any event - more EReaders mean less paper consumed, in an already depressed market for demand.