Uncoated Freesheet Squeezed Up

Pulp prices are rising all over Asia and in Europe by 5% in an attempt to set the global paper industry straight for a growth year. Uncoated freesheet prices—50-lb. offset rolls and most cut-size sheets (like 20-lb. bond)—have been ticking upward for the past few quarters. This pulp price increase is likely to keep prices firm for a few quarters absent an economic meltdown.

Assisting in the price increases are several machine closures in all corners of our own continent. North American uncoated freesheet capacity dropped by 7%, or just over a million tons, primarily by International Paper (IP), MeadWestvaco, and Weyerhaeuser.

Capacity will rebound a bit with the start-up of a new Weyerhaeuser machine in Tennessee, which will make 430,000 tons of (primarily) bond weights. Finch Paper also completed an upgrade and added 10,000 tons of offset paper capacity.

Shipments of uncoated freesheet grades were flat in 2002 at around 13 million tons, with a big boost during the last quarter (quarter-to-quarter shipments rose 4%).

It was a true Christmas rush for paper this year from direct mail houses, catalogers, and insert advertisers. Mills and merchants had reduced inventories throughout the year, essentially forcing the inventory turn-over by reducing prices for new stock.

With consumer spending looking bright and employment holding steady, advertisers pulled the trigger at precisely the time low paper inventories were seen.

The price increase likely will be carried through the year on the back of continued low inventories, palpable demand, and pulp price increases. Most paper pundits see higher prices and shipments for 2003.

Prices are a bit higher in 2003, breaking a four-year descent from about $45/cwt in 2000 to around $40/cwt today for 50-lb. offset rolls of mid-brightness stock. Sheet prices vary widely, but also have dropped from a high of $50/cwt to around $45/cwt for 20-lb. bond grade in low-brightness copy papers.

Mills continue to seek the efficient production of commodity grades, and are offering value through price incentives while developing products for the high-margin technical sheet markets in the retail and digital realms.

Pricing pressure continues to be applied by importers, primarily from South America and Asia. Incredibly, imports climbed in another poor economic year to nearly two million tons, which was offset somewhat by higher exports of nearly one million tons.

Printers, especially on the West Coast, should follow production trends in Brazil, Chile, and China to really predict pricing in the future. Without big new machines starting up in Asia and South America, and with a weakness in the dollar that could help imports, a strong economic showing in 2003 (say, GDP growth of 2.5% or higher) could push prices up to 2000 levels.

Growth of uncoated freesheet in certain segments was not materially affected by the bigger markets in commercial printing. Digital grades and premium uncoated grades saw modest growth, particularly in the retail and photo-quality areas. The premium markets were helped by continued promotion and design contact, helping to boost consumption near a million tons.

The digital markets are growing by access, i.e. new shops and expansions by commercial printers to fill out short-run orders [look for these markets to be covered in GAM later this year].