Are European newsprint prices at their peak?
Newsprint prices in Europe are showing signs of peaking in October after a three-month climb. What are the drivers?
European newsprint prices have continued to climb over the last three months, so far bucking signs early in Q3 that this year’s high levels were set to ease. However, in October, contacts have begun to believe they are at their peak.
In July, newsprint price ranges that were close to Euro 200/tonne wide narrowed sharply with the high end falling by up to Euro 95/tonne, as mills started seeking business more aggressively, and customers reported that supply shortages were starting to ease.
This saw 45-g newsprint selling in a range of £675-705/tonne in the UK, Euro 780-840/tonne in Germany, France and Italy, and Euro 790-850/tonne in Spain.
Buyers had little time to enjoy the situation, though, as a few large newsprint producers announced energy surcharges of Euro 100-120/tonne in early August – just a few weeks after apparently finalizing prices for the third quarter.
The surcharge was mainly limited to producers facing high energy costs at specific mills. Since others kept their levels stable, it blew price ranges even wider than they had been in June, with the mainland European range hitting Euro 795-960/tonne, and the UK’s £675-805/tonne.
Many buyers were angered by the timing and abruptness of the surcharge, but most had little choice than to accept it. Despite procurement being easier in August than it had been for much of H1, there was not scope to transfer newsprint orders away from the producers asking for the new surcharge to those that had not. “Have I got a choice?” one buyer exclaimed at the time. “Of course, there’s always a choice. I order the paper or I don’t order it.”
Through September, newsprint prices held steady, but hikes for the current quarter began to be widely discussed. Sellers who had eschewed the August surcharge were expected to match and surpass it. And those that had put through the surcharge aimed to incorporate it into their list prices, as well as up to Euro 75/tonne more. Many contacts reported targeting a price range of at least Euro 950-1,000/tonne.
In at least some cases, sellers have got it, with mainland prices this quarter reported in a broad range of Euro 850-1,025/tonne. But most contacts in October report that the bulk of 45-g prices are around Euro 930-970/tonne.
Validities are short, with prices only firm for the month; three-month contracts are explicitly subject to surcharges, contacts said.
There are still some six-month contract validities in the UK. And buyers there have been pushing domestic producers to keep prices more stable generally, due to the introduction of a six-month gas price cap for companies at the beginning of October.
October prices there are being reported in a range of £675-885/tonne, making the bottom end considerably cheaper than euro prices, even before the UK government announced a disastrous mini-budget on September 23 that cratered the value of the British pound against the euro.
Demand and gas prices down
Expectations for how high October’s prices could rise seem to have been stymied in part by lower demand recently.
Newsprint’s astronomical prices this year have encouraged printers, wherever possible, to reduce consumption. In July, European consumption was down 14.4% from the same month last year, according to Euro-Graph’s figures (see graph below). But through August and September, buyers, especially in Germany, were reportedly nervous about mill operations over the winter, fearing that if gas supplies fell short, industrial customers would be the first to face rationing.
“I can confirm that German buyers have been actively stocking up in anticipation of industrial shuts. They’re renting new warehouse space,” reported a trader contact there.
Several contacts said that this encouraged consistent buying through Q3, as did an anticipation of much higher Q4 prices. Consequently, printer stocks are reported to be very high. “I must say that customers are quite well stocked and have done a good job diversifying their supply,” said a contact from a large producer.
With general buying activity slower in October, contacts reported that newsprint procurement has eased considerably.
Energy surcharges were introduced on supercalendered (SC) paper in August, at the same time as newsprint, and October saw a general hike for that grade as well.
With SC prices high and procurement more difficult than for newsprint – especially in Italy, where some large SC mills no longer deliver – business for marketing applications is increasingly going to newsprint. However, contacts do not believe that the consequent bump in newsprint demand is significant relative to the overall decline in the market.
Meanwhile, the volatile, sky-high European gas prices that sparked the abrupt August surcharges have eased, hitting a three-month low this week, as reserves are high and as both the European Union (EU) and individual European countries institute price-calming measures. Consequently, customers seem to have less fear that mills, especially in Germany, will have to stop or slow their operations this winter due to gas shortfalls.
Supply also down
Although procurement has become easier in October, contacts largely report that the supply/demand balance is still weighted in favor of mills.
In September, contacts in Spain reported that a large western European newsprint producer will no longer sell there as it prioritizes markets that are logistically easier to service.
In terms of newsprint imported into Europe, lower shipping costs seem to be facilitating an increase in tonnages from North America. However, the import of Russian newsprint was cut off on October 6 by the latest round of EU sanctions on the country. Until that point, the trade had been permitted but constrained by shipping logistics, limited to train transport into often-bottlenecked hubs in northern Germany.
Though contacts estimated that the quantities imported into western Europe in 2022 would be much less than last year’s, it was also reported that inquiries for Russian newsprint stepped up through August and September, when customer nerves over winter procurement and higher Q4 prices were peaking.
Traders anticipate that the Russian tonnages will be made up for eventually, though, by increasing imports from elsewhere. “We’re talking with North American, even Asian mills,” confirmed an importer.
In the EU, capacity is down, with Norske Skog shutting the 125,000 tonne/yr newsprint PM 3 at its Bruck mill in Austria in July ahead of a Q1 2023 conversion to containerboard production.
The 235,000 tonne/yr PM 1 at its Golbey mill in France is also slated to stop newsprint production in the medium term, ahead of its conversion to containerboard production. Norske Skog has said that newsprint production is scheduled to cease in the first quarter of 2023, ahead of containerboard production beginning in the final quarter of that year.
Meanwhile, operational problems at European mills over the last few months repeatedly cut shipments with little warning, contacts said. “It seems like every producer is taking a week or so of downtime at every mill every month,” complained a buyer.
Most recently, Switzerland’s Perlen Papier had to stop its 370,000 tonne/yr newsprint PM 7 briefly due to a belt and fabric break, and some deliveries to customers were cancelled as a consequence.
Contacts are hesitant to make firm predictions about how the newsprint market will develop over the next two months, let alone as 2023 begins.
Contacts are estimating the drop in orders next year will be as much as 15%. But many made reference to how prices have been largely decoupled recently from the supply/demand dynamic, as energy costs drive policies at mills.
“So much depends on what governments do and what happens with the war, and even on what happens with the weather,” explained a large supplier. “A wet, mild winter will look very different from a dry, cold winter,” he explained, referring to gas usage for heating and water supply for nuclear and hydropower facilities.
Nonetheless, there is a widespread perception that newsprint prices have now peaked, and many contacts expect them to start falling in November. “Newsprint is not really in oversupply, but you can shuffle around orders a bit,” a buyer recently reported, contrasting the situation with August and H1. “So there’s been a little brinksmanship in the price negotiations.”
With gas reserves almost full across western Europe, gas prices dropping, and increasing government measures to keep energy costs relatively stable and affordable, many buyers hope that the high end of pricing will fall back from north of Euro 1,000/tonne to Euro 940-950/tonne.
Another seller was somewhat dismissive of the impact of energy price caps, though. “If there is a [EU] cap, it would still be at a historically high level,” he said. “We’ve already absorbed a lot of energy costs. It will be time to make a little money.”
Want to learn more about the impacts of the energy crisis? Take a deep dive into the natural gas crisis and its potential impact on European paper and board industry in this viewpoint by our European paper analyst, Philipp Jaki.