Rail Shipments Down with less Paper Demand

North American Rail freight volume of pulp and paper decreased and YTD carloads were down 20% through November. Last week, the Senate Commerce Committee passed comprehensive freight railroad reform legislation designed to increase competition and improve federal regulation of railroads. It is estimated that 30% of US paper, packaging and wood product manufacturing sites have access to only a single rail carrier. This monopoly status has led to high costs with poor customer service.

Will the Increased Containerboard Price Stick?

Pressure continues to mount for producers of container board after all the major North American manufactures announced the $50/ton price hike in the East and most producers are pushing for $70/ton in the West.

Demand continues to be weak – slow economy means less goods purchased and therefore, box volumes fell 12% year to date through November. Most buyers are trying to push back on price increases.

However, given the large supply reductions (recall our earlier blog that International Paper, Smurfit, and West Fraser will shut off 2.7Million tons) perhaps the price increase has a chance.

More Pulp Price Increases

Recently, Deutsche Bank hosted a conference on the pulp market and declared that after pricing had held flat for the month of December, the major softwood and hardwood producers once again announced price hikes of $20-30/mton in the US, Europe, and Asia, effective January 1.

Producers set NBSK price at $850/mton (+$20/mton) in the US, $830/mton (+$30/mton) in Europe, and +$20-30/mton in Asia, with China at $720-730/mton. China had been heading up the robust demand for pulp because of low inventories and tight supplies, but suddenly there are reports of slowing demand in China – perhaps the pipe line is finally full. Also, China started up 6 new pulp machines during the 2H2009 and 3 more will come on line 1H2010. China's new production will increase to 2.6Million tons of pulp by the end of 2010. Most North American buyers report that pulp remains fairly tight in supply due to equipment curtailments, especially Hard Wood. These same buyers predict this tightness will not last and a price correction will occur 2Q10.

P. Scott Vallely on CBS

Joe Connelly of the Wall Street Journal interviewed Mr. Vallely about the Paper.com site, one of the largest web marketing sites that focuses exclusively on selling paper. He commented on the success of the site to date and the recent initative to now market Paper.com for sale. Any interested buyers should email the management team at admin@paper.com . The interview was aired on WCBS radio 880.

China’s Sun Paper Announces Another Paper Machine

Sun Paper will build a $228 million, 300,000 TPA, uncoated mechanical (groundwood) paper machine at the Yanzhou City mill. This machine (PM24) will make publication papers in a basis weight range of 60-150 g/m2, in 2011. This will follow the installation of PM23, a 350,000TPA uncoated fine paper machine being installed in April 2010.
Sun currently produces 450,000 TPA of uncoated woodfree and mechanical paper, 100,000TPA of coated woodfree paper, and 300,000 TPA of cartonboard from this facility.

AbitibiBowater Restarts Another Paper Machine

AbitibiBowater reconfirmed that they plan to restart paper machine #5 in Thunder Bay, ON in early February. The 250,000 TPA newsprint machine was shut down indefinitely in August, along with PM #4, 160,000 TPA.

Update on Canadian Paper Market

It’s no secret, like the USA paper producers, Canada has also struggling with overcapacity and decreasing demand. The forecast is for the Canadian industry will lose an aggregate C$1.2 billion this year and the industry will not return to profitability until 2011. American Forest & Paper Association data show that the volume of shipments to the U.S. from Canada fell from 18% to 75% in various key paper categories during the first three quarters of 2009, versus the same period of 2008.

Canada has always been a world leader in Newsprint production with a capacity of over 10Million tons; however, newsprint makers estimate they will have only shipped closer to 7.2 million tons by year end. The future is not predicted to be much better with consumption at between 6.8 million and 6.9 million metric tons next year, and somewhat lower still in 2011.

More optimism - 2010 Improvement in Paper Industry

The Fitch Rating Organization recently forecast a modest recovery for paper in 2010. The rating service reported that short term demand for uncoated freesheet (UFS) and coated mechanical paper (LWC – Publication paper) are stabilizing and expected to rise later in year. Unfortunately, coated freesheet and uncoated mechanical (groundwood) is projected to experience slow demand Paper margins will continue to be squeezed by the rising cost of pulp, possible transportation and chemical price increases, and lack of black liquor credits.

2009 Results in Fewer Magazine Closures

MediaFinder.com reports fewer magazine closures in 2009, 428 vs. 613 in 2008 and 643 in 2007. The number of launches also decreased to 275 in 2009 from 335 in 2008. Regional magazines had both the highest number of start ups, 21, and shutdowns at 34. Business-to-business magazines saw 120 closings in 2009, less than 147 in 2008 and 158 in 2007. There were 85 b-to-b launches in 2009.

Another Prospective on the Paper Market

To compliment our report earlier this week on our Coy Paper news releases, we offer 'heard on the streets' comments that US Printing/Writing Paper demand and shipments were up 2.5% in November primarily driven by strong coated paper shipments.
November shipments of 1.435Million tons was the first monthly 2009 vs 2008 increase since February 2008 (vs. 2007). Total shipments YTD were 15.612 million tons, down 17% vs. 2008.
-Coated freesheet was up 10.4% to 293,600 tons in November
-Coated mechanical (LWC - publication paper) up 14.7% to 285,100 tons.
-Uncoated freesheet was stable at 714,800 tons, down 0.5% vs. last year. November shipments were down vs. October, due to seasonality.

Smurfit Finally Announced Down Time

Smurfit-Stone has announced 900,000 tons of permanent linerboard capacity closures at two locations.
-Ontonogan, MI corrugating medium mill (280,000 tons)
-Missoula, MT mill (620,000 tons)
Smurfit news follows the recent announcement that International Paper will shutter 1,400,000TPA of containerboard capacity and West Fraser's announcement of 450,000 tons
of capacity.
The producers will most likely continue to adjust supply to demand which will assist the recent price increase.

Magazines raise Cover Prices

Revenue generated from advertising pages is forecast to continue to be depressed. Accordingly, several publications look to survive by increasing the cover price for the magazine.
A few examples include-
-Condé Nast - The New Yorker, Golf Digest and Teen Vogue in 2010,
-Hearst - Good Housekeeping, Esquire and Veranda and is considering the same for Country Living
-Wenner - Men’s Journal and Rolling Stone
-Meredith - Better Homes and Gardens and Ladies’ Home Journal, Family Circle and Traditional Home
-Rodale is looking at doing the same at its health/fitness titles
Publishers are also reviewing decreasing the frequency they print magazines in an effort to save money.

Price Increase for Bleached Board

The producers of Solid Bleached Sulfate (SBS) board grades are beginning to tell end users about increasing the price by $40/ton. Although these grades have not had an increase since October 2008 (transaction price $1000-1050/ton), they also have not had to discount pricing like so many other paper grades during 2009. So far Georgia Pacific and MeadWestvaco have formally announced.
Recall MeadWestvaco shuttered a 200,000TPA paper machine in Texas and International Paper will close a 140,000TPA machine in Virgina.

Market Update Illustrates Optimism

Exempts from Deutsche Bank - Equity Research

The printing and writing paper shipments for November look dramatically improved versus at this time last year. The American Forest & Paper Association released market data. Deutsche Bank cautions that a good portion of the improvement owes to a "lapping" of weak numbers
from 4Q2008. Nonetheless, the numbers are striking and could signal the beginning of an inflection point in white paper markets. The best year over year comparables were in light-weight coated paper (LWC), where preliminary data suggests shipments were up 14.7% (-22.4% YTD). Spot discount pricing for LWC are slowly increasing.
Heavier-weight coated free sheet shipments were up 10.4% (-20.7% YTD). Uncoated free sheet shipments were down -0.5% (-12.6% YTD). The smallest category, uncoated groundwood, had the weakest performance with shipments down 15.0% (-23.4% YTD). Sequentially,
shipments in all markets were down from October levels. Much of that month to month easing would appear to be seasonal as the holiday printing season begins to ebb.

As noted industry shipments are now lapping 2008 shipments. Thus, enthusiasm should be tempered. Moreover, we think coated and uncoated free sheet markets remain vulnerable to
ripple effects from pending capacity start-ups of some 4.5MM tons in China as well as capacity overhangs in other markets. Quick note on pulp, looks like price increases have slowed, and demand has stabilized – China buying less and global inventories in balance.

Japan Exports to China to slow as China Adds Paper Capacity

In the next two years, China plans to add 4.6Million TPA of paper capacity,
-2,600TPA being coated woodfree
-2,000TPA uncoated.
The 4 manufacturers of coated paper
- Jinhai Pulp & Paper (APP China) 900,000 tons
- -Shandong Chenming 800,000TPA
- -Shandong Huatai 500,000TPA
- -Oji Paper 400,000TPA
Uncoated paper will be in balance with demand, because many smaller manufacturers are being consolidated into the larger ones, and there is growth enough in China to absorb the rest.
The coated market, however, is all new capacity. The high growth Chinese market will eventually absorb the excess by the end of 2014. In the meantime, they will be forced to find external markets for excess capacity and/or suffer low operating rates.


In 2009, Japan was the fastest growing market for Chinese exports, increasing 400% or 145,000 tons vs. last year. Japan’s paper producers have had difficulty competing on price, however; recently they have become competitive, resulting in October Chinese imports to Japan dropping 21% vs. Sept. The extent to which Chinese coated exports will be affected by the US anti-dumping investigation or fears over Dubai, will determine where the excess tonnage is sold in the next 2 years.

Paper.com Looking for Buyer

Paper.com LLC operations, arguably the largest web based paper marketing company, recently commissioned Moniker to secure buyers for the site. Paper.com has over 40,000 paper items and thousands of visitors each day; the site has nearly 2000 affiliate marketers and a category 'killer' URL address is now for sale. Contact admin@paper.com

Neilson Sells Magazines

Nielsen Business Media has agreed to sell eight of its media brands, including a number of its trade magazines, to e5 Global Media, a new company formed by Pluribus Capital Management and Guggenheim Partners.

The sale agreement includes The Hollywood Reporter, Billboard, Adweek, Brandweek, Mediaweek and Back Stage magazines, as well as Nielsen’s Clio Awards and Film Journal International. Also being sold is the Film Expo Business, which includes the ShoWest, ShowEast, Cinema Expo International and CineAsia trade shows.

Financial terms of the deal were not disclosed, although it was rumored to be priced at approximately $70 million

Two More Paper Mill Closures

This week, beyond the Paperlinx machine shut downs just reported, two more companies officially announced downtime. Note, most paper producers are constantly curtailing manufacturing due to poor backlogs - just not formally announcing it.
-Sappi Fine Paper to close Kangas Mill in Finland by 1Q 2010,.
-Nippon Paper Mill Down for 2 Weeks in Port Angeles, WA, this is the third shutdown this year.

St. Mary’s Paper Plans Downtime

St. Mary’s Paper in Sault Ste. Marie, Ontario will idle paper machines #3 and #4 during the 1Q2010. PM #5 will remain operational. Management sited poor demand as the reason for this market related downtime.

The mill produces 240,000TPA of SCA premium, SCA and SCB paper grades under the trade names Sequence, Sequel and Synpress

PaperlinX Departs from Paper Manufacturing

Australia's PaperlinX has decided to close its Wesley Vale pulp and paper mill and one of the two paper machines at its Burnie mill and therefore reduce production at Tasmanian paper manufacturing operations, The closures mark Paperlinx's exit from paper manufacturing. Upon completion of this exit, PaperlinX said that it will be solely a distribution company, distributing paper, signs, display and graphics materials, and industrial packaging.

The Wesley Vale Mill produces 40,000 TPA of pulp and 145,000TPA of coated and uncoated papers for publishing, business forms and printing
The Burnie Mill has a capacity of 140,000TPA of uncoated business papers.