European magazine paper prices increase sharply
Producers actions to reduce losses raise raw material costs, the market now braces for Q4 hikes
By Andrea Venturini, news editor of PPI Europe of Fastmarkets RISI
European magazine paper prices rose sharply in July for deliveries in the second half of the year despite still sitting at low levels. These price hikes are not strictly linked to increased European paper demand, instead caused by European producers attempting to reduce the losses linked to steep increases in all raw material costs.
Supercalendered (SC) paper prices and lightweight coated (LWC) paper prices increased in both continental Europe and the UK.
According to data from EURO-GRAPH, the European Association of Graphic Paper Producers, European SC demand dropped by 1.9% year on year to 948,000 tonnes during the first five months of the year, while coated mechanical reels (CMR) demand sank by 4.7% to 1.2 million tonnes. However, SC demand improved by 11.6% year on year to 182,000 tonnes in May alone, while CMR demand improved by 29.2% on a year-on-year basis the same month to 250,000 tonnes.
Raw material costs bite
At the beginning of 2021, both the SC and LWC markets continued to be oversupplied despite the supply and demand balance starting to move because of the closures of UPM’s Kaipola mill, SCA’s Ortviken mill and Norske Skog’s SC PM 5 at its Saugbrugs mill. On the sales side, prices for all magazine grades dropped to historically low levels for deliveries in the first half of the year. But then cost pressure began to grow. Paper for recycling (PfR) prices began to increase on the back of lower collection levels, strong demand from containerboard mills and surging demand from South-East Asia. Pulp prices moved up as well, fueled by strong demand and increasing prices in China. Meanwhile, most other input costs, including energy, gas, CO2 allowances, transport and chemicals also began to grow, pushing most magazine paper mills into the red at such low sales prices. In this situation, recycled-based paper producers began to reduce their output because of a lack of PfR, while pulp-based paper producers wondered what to do in order to restore profitability.
“Everyone talks about the issues with the deinking grades, meanwhile pulp prices have risen by 25% since December, and producers have just announced a further $100 per tonne increase. I don’t know how we will make it until June,” a market contact said in March to PPI Europe reporters.
In this situation, paper mills started to increase prices for both uncoated and coated mechanical paper grades as of Q2 for all spot deals, new business and anything not covered by long-term contracts. At the beginning of April, Burgo announced a price increase of up to 15% on deliveries of CMR as of Tuesday June 1. Later that month, UPM announced a €60 per tonne increase on all mechanical grades, while Sappi said it would raise all CMR prices by 10-12% with immediate effect. Perlen announced a €60 per tonne increase on CMR as of Thursday July 1, while Heinzel said it would increase SC paper prices by a minimum of €70 per tonne from Saturday May 15 for all new business and all additional volumes, and from July 1 for all regular volumes.
“We are increasing prices wherever possible, and we are doing it in a way that will allow us to cover our cash costs, which means strong price increases,” one market participant said in April to Fastmarkets PPI Europe reporters. He added: “What is already in our books, we deliver it, but extra volumes are only possible if the price is good. As for long-term contracts, we will see. On the one hand, we respect contracts, but on the other, we need to survive.”
Paper demand starts to improve as pandemic measures ease
With the roll out of the Covid-19 vaccination programs in Europe and the consequent relaxation of emergency measures linked to the pandemic, the European economy began to improve, and so did paper demand, especially on the retail side. Meanwhile, in April, Stora Enso announced its intention to close its Kvarnsveden mill in Sweden and its Veitsiluoto mill in Finland in Q3, thus reducing its mechanical paper production capacity by approximately 880,000 tonnes per year.
”We are enjoying quite good operating rates. We are also active in overseas areas, we have quite good overseas exposure and the situation is improving in North America, South America, South Africa and Asia. Also, Stora Enso’s announcement has had a major effect on operating rates and on negotiations,” one market source told PPI Europe reporters. “We are very well booked. May and June are fully booked, July almost. But it’s due to overseas business, which is increasing dramatically,” another source added.
In this situation, negotiations for deliveries in the second half of the year and in the third quarter were wrapped up pretty quickly in June, as it became clear that the main issue had become availability rather than price. “There is an issue with prices of course, but for some customers it can be a problem of volumes, too. And there are still question marks about PfR. Will paper mills be able to buy more PfR during the summertime or not?” one market source wondered.
According to Germany’s print and media industry association Bundesverband Druck und Medien (bvdm), some German printing and media companies have said that in some cases they are not receiving paper deliveries from their suppliers or that they are receiving them with long delays. “Since the declining demand for graphic paper in Germany and Europe has led to the reduction of production capacities, the competition among buyers is now even fiercer,” the bvdm said in a statement.
Are more LWC price hikes coming?
Despite the price increases in force since July 1, paper mills continued to feel the cost pressure as the new prices were still not enough to offset the increases on the cost side. The situation became dramatic in July, forcing some paper producers to act. At the beginning of the month, Kabel Premium Pulp & Paper told its customers that it would implement a raw material surcharge for deliveries of LWC and mediumweight coated paper as of Sunday August 1 to compensate for the cost inflation concerning chemical pulp, energy, chemicals, wood and transport. The company said the surcharge of €60 per tonne for reels and €30 per tonne for sheets would be included in invoices as a separate item on top of the €60 per tonne price increase already agreed for H2 shipments. Later in July, Burgo announced it would increase mechanical paper prices by €50 per tonne for shipments from Wednesday September 15, while Sappi said it would raise prices for CMR by no less than 10% across Europe effective immediately for all new business and no later than Friday October 1, depending on ongoing agreements.
Both companies attributed their intention to raise sales prices to increasing cost pressure. Despite not having issued price increase announcements, other LWC producers also expressed their intention to adjust prices upwards as of October 1. “One market player is saying it wants €150 per tonne more for CMR deliveries from September. We should go to €700 per tonne and beyond to break even, but what will happen to demand after this?” one market source wondered.
There are concerns of possible lack of paper in September and October, when the Christmas catalog season kicks off because the market is extremely tight. “The big problem now is availability. This is evolving into a mini-crisis, as none of the big players can confirm volumes for Q4 at the moment. This is precisely what I feared: the economic recovery is looking much stronger than predicted, exactly at the same time that Stora Enso is removing a considerable amount of capacity from the market. The fight now is over securing volumes for the rest of the year,” one market participant said. “Usually, summertime is a low-demand period and paper mills stock up for the Christmas catalog season. But now they cannot build any stock as they’re selling all the volumes they produce. I don’t want to think of what would happen if there is not enough paper for magazines,” another one added.
Lead times are now very long, and paper mills say they are fully booked for September, October and sometimes even November or until the end of the year. “Lead times reach to October and November. We still have some space on the machines. We’ll see if they are reservations or actual orders. Right now, there is not enough paper available to cope with all the requests coming in, and some people will remain without paper. With operating rates so high, we had to take some technical downtime, so in some cases we had to cancel some orders,” one source said.
According to paper producers, the current market tightness is not only due to capacity reductions and good overseas demand, but also to European consumption. “European demand in June showed that there has been a normalization compared to 2020. Year-to-date demand is in line with the structural decline trend,” one market participant said.
A considerable portion of the improved European demand seems to be coming from the commercial side, with retailers eager to invest in marketing initiatives in order to make up for financial losses due to the pandemic. “People want to spend money and retailers are there to remind them that they can spend it,” one market source commented. “The opening of the economies is resulting in the fact that some non-food companies have restarted producing advertising material. Magazine advertising is also improving,” another one added.
End-users also hit by costs
Strong increases in raw material prices also hit the printing industry, which has had to absorb consistent ink and offset plate price hikes. For this reason, France-based printer CPI Group also announced a 5% price increase as of July 1.
“Given the magnitude and speed of price increases for all raw materials and semi-finished products and in order to continue to be able to procure these products on the market, CPI feels compelled to increase its prices effective July 1, 2021,” the firm said in a statement.
On the editorial side, a number of magazine publishers across Europe have announced the closure of some magazines and a subsequent workforce reduction.
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Originally published in Fastmarkets Forest Products PPI Europe. This article has been amended for brevity.