Printing and writing paper destocking in North America continues to put prices under downward pressure
Demand for P&W papers remained soft in a typically strong period of sales for the industry, prompting Billerud to postpone October price increases
While pulp and paper price increases started to pop up in some parts of the world, North American printing and writing paper prices remained under downward pressure due to slower-than-expected demand in the third quarter, which is usually the strongest period of sales for the industry. Mills continued to operate at very low capacity, and the supply chain is still holding more-than-desired inventories.
“There is still too much inventory available in the entire supply chain. At the same time, demand has been reset to a new level. Manufacturers’ operating levels are at historical low levels. …We need to improve this, or to stabilize pricing, to avoid more capacity exits,” Veritiv VP of Commercial Management, Jeff Pifster, noted on a webinar last week.
Year-to-date, North American printing and writing mills operated at 77% of their capacity, with August inventory level at 848,000 tons, or 15% higher year-over-year, according to the Pulp and Paper Products Council (PPPC). Last year, the mill operating rate for the January-August period was 96% as customers were still in a post-pandemic panic-buying mode and bought much more paper than what they needed, building a lot of inventory.
PPPC estimates that printing and writing paper inventories at customers increased about 1.98 million tonnes in 2021 and 2022 (485,000 tonnes in 2021 and 1.54 million tonnes in 2022) and that over half of these stocks were worked down during the first half of 2023.
Paper buyers are “still overstocked”
Industry contacts reported to Fastmarkets’ PPI Pulp & Paper Week in September that while most paper merchants and some printers have already worked through most of their inventories and started to order paper again, some are still overstocked. Also, they no longer want to build as much inventory as they used to in the past.
One contact with an uncoated freesheet (UFS) producer said that paper demand is “gradually improving as customers get inventories under control, and backlogs are up going into October.” The contact expects incremental monthly improvements going into the new year, but he noted that the overall situation will not see improvement yet.
I do not expect a significant improvement in the overall inventory situation until the first quarter of 2024.
“There’s still a little bit of extra inventory at the producer channel,” Pifster said on the Veritiv webinar, citing that North American printing and writing paper mills had 42 days of inventory on hand (DIOH) in July 2023, or 10 days more than in July 2022.
A contact with a paper importer cited this week that “inventories are depleted … and started to align.” He noted that “orders started to come back somewhat” as “people (customers) are realizing that … pulp and paper prices stopped going down, and sometime they will increase.”
“A lot of the inventory is gone, but demand is not as robust as everybody thought. It’s busier, and I see less inventory, but people are no longer building as much as inventory as before. We’re not seeing gigantic demand in the third quarter as in the past,” a paper seller commented.
“Finally, thank goodness, they (paper merchants) exhausted most of their inventory build. We’ve been waiting the whole year for that. They’re not ordering a lot, but at least they’re buying again,” a contact with a UFS producer told P&PW this week.
Paper supply and demand in the market
Even though the destocking is mostly over, industry contacts noted that demand is still weak, and this might be the new level of demand in the North American markets.
Printing and writing paper demand in the first eight months of 2023 was 26.5% lower than in January-August 2022, according to the PPPC data. Mill shipments to the domestic markets declined 25.4% while exports dropped 4.2% in the period. Paper imports were also 32.4% lower in the period.
Contacts reported that large uncoated and coated paper mills in North America continued to take a lot of downtime in September, and that should happen again in October.
Billerud will take its Escanaba, MI, coated paper mill down for annual maintenance and market-related downtime for two weeks in the beginning of October, “to balance production with demand,” the company announced earlier this month. Contacts also mentioned this month that Sylvamo has plans to stop its Ticonderoga, NY, UFS mill for the whole month of October.
PPPC data showed that the two largest direct mail segments, which use a lot of printing and writing paper – credit cards and mortgages & loans – are both down this year to July over last year, respectively by 20% and 40%, because of the high inflation and high interest rates. Mailing of catalogs and publications have also dropped a lot this year because of higher postage rates, negatively impacting paper consumption, industry contacts noted.
A weaker-than-usual season for paper sales
Most printing paper suppliers reported that their September sales were okay, but weaker than they were expecting.
“Market is okay, but not robust. I’m not seeing that improvement on demand we were expecting … it has improved, but there’s not robust demand out there,” a paper distributor said earlier this week.
A contact with a UFS producer mentioned that “market conditions still remain soft … we did not expect demand to be this soft this late into the year.”
Everyone is seeing a pickup in demand, but not much … And nobody is certain about how the first quarter of next year will look like.
“Our book of business continues to improve. Nothing to make us jump up and down, but a bit better,” a UFS producer said.
Another UFS suppliers stated that the first half of the year was still strong for its business, but then July, August and September were below expectations. “We were expecting better demand because of back-to-school, but it did not happen. It was different than previous years,” the source said.
“It was a pretty decent third quarter for most people … We had a really good July, then August and September traded off. Moving forward, sentiment is that demand will be improving, but of course there is economic uncertainty, and probably the fourth quarter won’t be as good as the third quarter,” a contact with another UFS producer commented.
A contact with a coated paper producer commented that some printers are “very busy and placing large orders, also reserving paper for next year, for the electoral campaign” while others are not. “Demand varies depending on the geography … and it’s been affected by economic factors,” the contact said, noting that “paper merchants … want to keep low inventory overall … but they’re reordering paper.”
A contact with a commercial printer reported that “my paper consumption and our customers’ demand is improving,” but “we’ve been seeing more mills wanting to sell paper … looking for a place to sell their paper.” “The market conditions remain pretty soft,” the contact noted.
P&PW learned from industry contacts that most printing and paper grade prices remained unchanged in September over October, as large mills continued trying to keep prices stable as much as possible.
“(UFS) Pricing is holding … with a few cracks … but in general, the market is disciplined. I would prefer to take downtime to keep the inventory in check than reduce pricing,” a cutsize paper producer said.
“We hear of some lower prices in the Midwest … but our price is the same,” a contact with an offset roll paper supplier stated.
Billerud price increase delayed
Contacts reported that the October price increase announced by Billerud has been “indefinitely postponed” or “delayed” as market conditions were not supporting such a move. Billerud had told customers that it would increase CFS paper prices in North America by 2%, effective “with all new and existing orders with confirmed delivery dates of Oct. 1.”
“I just got a call (saying) Billerud is delaying their increase,” a paper buyer told P&PW on Sept. 20.
“We have just been told that Billerud is delaying the October price increase. …We are kind of worrying about … what’s going on with the company. … A price increase is discouraging for people that want to buy more paper, and people are not buying much paper anyway,” another buyer stated.
Contacts reported that no other suppliers announced price increases in the North American market. A paper distributor said “Sappi has not jumped into it (Billerud’s increase),” while a paper producer noted “I have not heard that anyone else has announced (a price increase).”
Sappi at the end of August announced in Europe that the company would keep prices for its CFS grades “stable at today’s level for the remainder of 2023,” and P&PW’s contacts reported that the company was taking the same approach in North America, to avoid price declines.
“Most mills are trying to keep prices stables as much as possible,” a player told P&PW.
A contact with a paper trader mentioned earlier this week that some domestic and some overseas suppliers of UFS were “offering deals to move inventories they still have, but overall they stopped to lower their prices.”
A contact with a major UFS producer said that smaller mills were being “more aggressive in the last two months in pricing, but now the pressure is not accelerating, even though it’s still there.”
A coated paper producer commented that his prices remained still the same this month, but “Of course, if a customer comes with a big order, we would offer a discount.”
Will there be more capacity shuts?
Industry contacts also noted that North American mills will have to move more printing paper capacity away to align with the “new level” of demand and to bring operating rates back to 90%. They cited a few candidates for capacity closures in the near future, including UFS mills owned by Domtar, Sylvamo, and Pixelle.
“The demand in the last two months was not what suppliers wanted or needed. I see another PM (paper machine) closure in the US before yearend,” a market analyst told P&PW this week.
On the coated paper side, No. 1 and No. 2 producers by capacity – Sappi and Billerud – have plans to convert capacity into boxboard in 2025. While Sappi plans to convert its 260,000 tons/yr CFS paper machine No. 2 at the Somerset, ME, mill to 520,000 tons/yr of solid bleached sulfate (SBS) boxboard by the second half of 2025, Billerud plans to convert one paper machine that makes both CM and CFS at its Escanaba, MI, mill to folding boxboard (FBB) in 2025.
This article was taken from PPI Pulp & Paper Week, our newsletter for pulp, paper and packaging market news and prices for North America. Speak to our team to learn more about our news and market analysis, prices, forecast and more.