Paper Market Trends - Alitho

Check in here for timely updates from American Litho’s paper expert, Executive Vice President Chris Joyaux.

Volatility in the paper industry can hamper your ability to complete print projects in a timely, cost-effective way. To keep you informed, we bring you news and insights from paper expert Chris Joyaux.

It’s part of American Litho’s 360-degree commitment to help you reduce costs, increase relevancy and achieve greater print ROI.

Through our strategic partnerships with manufacturers and distributors, are confident we can offer you the quality stock you need at competitive prices.


Below are a comments from Alitho’s industry sources on the current paper outlook and upcoming trends.


This news was recently shared from ND Paper on their Freight Policy. Contact American Litho on additional details on this policy change.

ND Paper is announcing a revision to our freight charge policy. As a newly formed entity, we have aligned our freight policy with our current geographic manufacturing footprint. The intention of the new policy is to maintain as many destinations as full freight allowed (FFA) as practical given today’s freight market. Our new policy will allow for more than 80% of the current volume shipped from ND Paper to have an FFA option. The policy provides a simple view of charges across the continental United States and Canada.

Some highlights of the attached policy are:

  • Charges will be applied by destination state/province and mode of transportation
  • Shipments from warehouses will be charged the same as shipments from manufacturing facilities
  • Charges apply to all products from either our Biron, WI or Rumford, ME mills
  • The policy is effective for new and existing orders with confirmed delivery dates of September 4, 2018 and later

ND Paper Freight Policy 1

 

Paper Trends – American Litho recently received some news on the future of the ND Rumford and Biron mills. Below are the highlights of what was shared and clarification of the issues raised in a recently retracted RISI article (July 2018).

 

Rumor:  The product mix at the Rumford Mill will be converted to 100% market pulp, all of which will be sent to Chinese Nine Dragons paper mills.

Reality:  False.  In addition to producing ~550,000 metric tonnes of paper, the Rumford Mill has over 100,000 tonnes of annual market pulp capacity; the mill has sufficient pulping capacity to support both paper and pulp product categories.  While some market pulp may be shipped to Chinese mills, ND Paper remains committed to its core Printing/Writing & Specialty Paper customers.

 

Rumor:  ND Paper is implementing strategic plans to convert the entirety of its asset base to containerboard production.

Reality:  Not true.  We recognize that, despite current market tightness, the demand for traditional printing and writing paper grades is declining.  With that, a strategic evaluation of our asset base is fundamental and necessary to preserve the ongoing viability of our operations.  Importantly, this strategic evaluation is not yet complete; we have not yet arrived at any definitive conclusions.  It is safe to say, however, that converting Rumford to pulp-only is not among them. We are proud to operate some of the leading Printing/Writing & Specialty Paper machines in North America, and we intend to be in the business for the long haul.

Sappi North America announces a transactional price increase on new and unconfirmed orders that book with confirmed delivery dates on or after Monday, July 23, 2018 on the following products:

A $3.00 per CWT US$/$4.00 per CWT CAD$ increase on < 60#/89gsm:

  • Somerset Web
  • Flo Web
  • Galerie Web

A $1.00 per CWT US$/$1.30 per CWT CAD$ increase on ≥ 60#/89gsm:

  • McCoy Web
  • Opus Web
  • Somerset Web
  • Flo Web
  • Galerie Web

Standard differentials and upcharges apply. This price increase includes all private label programs.

Contact American Litho for additional insights on Sappi paper supplies.


How much longer can graphic paper prices climb?

BEDFORD, MA, June 2018 (Viewpoint) – By Derek Mahlburg, Senior Economist, North American Graphic Paper

Although the decline of print publishing and advertising is a persistent problem for many graphic paper buyers, the downward trajectory of graphic paper prices in 2012-2016 made the ongoing loss of market share and revenues to digital media somewhat more manageable. The five-year descent of pricing has sharply reversed since mid-2017, however, with US graphic paper prices in May 2018 already 7-21% higher than their year-ago levels. Uncoated freesheet prices, which have been more stable than those of coated and mechanical papers since 2012, are up by a relatively modest 7-8%, while coated paper prices are up by 11-15% year over year. US newsprint prices experienced the most dramatic descent over the past five years, but the recovery since late 2017 has been just as impressive; powered by tight market conditions and tariffs of 28% or more on many Canadian mills, US newsprint prices are up by a whopping 21-24% over the past 12 months, and producers with steep tariffs have successfully implemented even larger gains. For paper buyers that have grown accustomed to stable or even declining prices over the past five years, the soaring prices of 2018 are a rough revival of rising paper costs.

Soaring Paper Figure 1

Souring Paper 2

An important factor enabling the price declines prior to 2017 was the steady retreat of paper production costs. The decline in production costs ended in 2016, with increases in costs for chemicals, delivery and, of course, market pulp, all playing major roles in reversing the downward trend as general cost inflation also began to heat up in the general US economy. The ascent of US pulp prices, which have risen by 30% since the beginning of 2017, helps to put some of the double-digit pricing gains for graphic paper into perspective. Thanks to skyrocketing pulp prices, the price differential between market pulp and uncoated freesheet is now at its lowest point in the past decade, and if the continuing parade of market pulp supply shocks results in more price gains, the gap will narrow even further unless paper prices climb further as well. Other upward cost pressures include transportation bottlenecks and US tariffs of up to 16% on supercalendered paper and up to 32% on all other non-directory grades of uncoated mechanical, including newsprint, from Canada.

Ultimately, producers’ ability to pass on cost inflation and maintain healthy margins depends on the supply/demand balance. On the supply side, prices fell by more than costs in 2012-2016, putting profitability for coated paper at all-time lows and triggering a major round of capacity rationalization that has supported the market conditions that have allowed prices and margins to recover, especially for non-integrated producers who do not need to buy market pulp. US printing & writing seasonally adjusted operating rates were at 93% through the first four months of 2018 compared to 90% through the first four months of 2017, and the prospect of more conversions to specialties and packaging will help keep capacity in line with demand.

Whether capacity is adjusted quickly enough also depends on the speed of the demand decline, which may be exacerbated by the size of the price increases. Paper represented about 10% of operating costs for the largest public US magazine publisher in 2017, so the coated paper price increases of 10-15% already in place represent a little more than one percentage point of a handicap for operating margins. For newspaper publishers, paper accounts for about 5% of operating costs, so the 2018 paper cost inflation will have a similar absolute impact on profitability, but newspapers have very narrow margins. Although one percentage point of operating income may seem like a modest amount, most of the newspaper publishers that we track already have operating margins of 6% or less, and all but one experienced a revenue decline of at least 4% in 2017, so price increases will bring force buyers to bring paper conservation back into focus and increase subscription prices. Even if increased subscription prices help keep publisher revenues stable, they will result in decreased circulation and negatively impact paper demand.

US prices have climbed a great deal already since 2017, and more price increases are on the table for every grade of graphic paper. Some of the factors pushing prices up include cost inflation and capacity reductions that have boosted operating rates, while the demand side of the supply/demand picture continues to provide downward pressure and presents additional risk via price elasticity. RISI’s forecasts for how these opposing forces will balance out are available in the latest Paper Trader  and North American Graphic Paper 5-Year Forecast.

 


(PPI Pulp & Paper Week) – A new $50/ton May price increase began taking effect for North American uncoated freesheet (UFS) paper this month with virtually no equivocation from buyers, contacts reported. Customers continued to face scarcity of supply and lengthening mill backlogs.

Papermakers were holding customer orders to historic averages for both offset and cutsize paper, and have machine backlogs of up to 60-90 days, mill and merchant contacts said.

“UFS rolls are super hard to come by and delivery dates are pushed out,” one contact with a major commercial printer confirmed.

“There’s not enough paper to go around … hard to believe,” one merchant source said.

“There’s no delays and no negotiations (on price),” another merchant contact said. “It’s not a question of pricing, it’s a question of can you get the order in, because if you don’t, you’re out in July.

“There seems to be more panic in the air,” a mill source said. “I’m getting crazy phone calls. You can hear the panic in their voice if they don’t have a position – there’s desperation to get tons.”

Buyer sources emphasized the importance of supplier and mill relationships in the new market dynamic.

“Customers who ran to the lowest price are coming running back, but people are not quoting for them,” one merchant source said. “If you’re not an existing customer, you just don’t get (paper). Mills can’t entertain any new business until they catch up and they don’t know when that is going to be.”

“Mills are sold out on commodity/commercial offset basis weights … current shipping dates can range from August through the end of 2018,” another merchant contact said.

“We’re typically out a month (on backlogs) but we’re pricing orders in August ‒ and August will most likely be full by the time we get started in June,” one mill contact said.

 

Move to opaques.

Mill sources said they are trying their best to accommodate customers with paper, and product mix is a part of that.

“You may be able to get value-added tons but not commodity tons,” one merchant said.

“Some people are moving up to higher quality if they don’t have a floor position or customer inventory position, for example by moving to opaque from offset,” confirmed a mill source.

“(Customers) are buying higher-priced brands if they can’t get commodity offset. We’re seeing a huge increase in opaques – at least double our previous orders,” another mill contact said. “We hope end users like the higher quality product and decide to stick with it.”

Contacts said supply has dried up faster than suppliers’ ability to meet demand, and the ensuing tightness is being compounded by mills taking maintenance at what is historically a seasonally slower time.

“Some are late in delivering orders in an already stressed system coming off seasonal maintenance outages,” one source said.

Contacts also said some manufacturers who were tempted to postpone machine maintenance and continue running flat out have reportedly experienced equipment issues and/or product rejects that required shutdowns.

“When you get tight, then (maintenance) really gets problematic. It doesn’t take much downtime to get things out of whack,” a mill source said.

 

A fall supply crunch?

“They’re having problems keeping up,” a merchant source observed.

Merchant sources also said they worried about some customers’ difficulty understanding that “prices don’t always go down,” and inability to plan ahead given concerns about a supply crunch at the end of the summer.

“We have some customers totally insulated from the market who don’t understand why they can’t get paper in two weeks,” one merchant contact said.

Most domestic UFS producers’ increases became effective in the second or third week of May, so a full month of implementation is not yet in place. Also, according to supplier sources, a lot of customers start paying the increase next month, with the largest portion in June and the rest the following month when the new quarter starts. Those who saw an immediate increase estimated prices have increased $40-50/ton in the past 30 days.

“I think the full May increase will go through. It might take two months, but it will go through,” a commercial printer contact forecast.

Many sources also spoke of the likelihood of another increase later in the year.

“Look at the projected UFS decline and overlay that with what’s scheduled to be taken out and I can’t see anything changing any time soon ‒ especially with the pulp market pushing up raw material costs,” one said.

“We’re really worried about the fall. Come August-September, mills that have been robbing Peter (from inventory) to pay Paul won’t be able to pay Peter,” said another merchant contact. “UFS supply will loosen up a bit in June but if the smart people fill up, inventory is flushed out of the system, and with the uptick in demand, I will not be surprised if we see another increase in the fall.”

“Buyers think you’re making millions of dollars when the price goes up, but with the price of fiber, we really need increases,” a mill contact said. “We’re certainly not where we thought we’d be. It’s a period when you try to get your commodities lined up to get through the next trough.”

Cenveo set a 5% price increase on all envelope grades effective with July 2nd shipments, citing ongoing market conditions and the rise of raw material costs including paper and freight increases. “These are challenging times for our industry with material increases and continued unprecedented issues around freight capacity and escalating costs,” the firm told customers.


Successfully navigating the trucking and paper crisis is all about planning ahead

May 2018

Electronic drivers logs are putting additional pressures on the trucking industry, placing greater emphasis on thoughtful planning.

This is primarily due to the new regulations in the trucking industry.

For every 10 truckloads of product that need to be shipped, there are only enough drivers and equipment available for 6.6 of them.

This has created a bidding was. We hear this weekly: “Don’t count on that truck showing up at your door until it does”.

Numerous times we have expected a truck to pull up for an outbound load, (only after calling) to find out the carrier took another load that paid more or the driver assigned to the load ran out of driving hours. This situation is not going to improve anytime soon.

The best way to deal with this issue is to plan ahead:

  • Don’t wait until the last minute to place orders.
  • Take the time to educate your customers. They have a stake too.

Now let’s review the current conditions in the paper market.

If we look at where we were last year, the market for uncoated free sheet was around 7,500,000 tons. Of that approximately 1.200.000 tons have either been taken out of the market or are scheduled to be taken out. That is a 15.8% reduction I tons of uncoated free sheet available in the US.

Operating rates last fall were in the 88% range and have soured to over 95% in the first quarter of this year. The paper mills are no longer in an over-capacity situation and are now pushing through price increases that we have not seen since the 90’s.

$2.00/cwt last October, $2.00/cwt in February of this year and another $2.59/cwt going into place in May. Most mills have their customers on allocation not allowing for the buy-ins that we saw in years past.

The mills are now in the process of their annual spring shut down for maintenance. This is helping to keep the backlogs strong and when this is completed, it will be back to school time as they look to build their cut sheet inventories.

The key to managing these hurdles is good communication. No one can guess when the next increase may be, or know when lead times will be pushed out even further. Be sure to keep your customers informed of what and why some of these conditions happen.


Drivers Under Pressure: Trucking Woes Fuel Shift to Rail Transport

May 2018

The growing crisis in long-distance trucking shows no signs of stopping. New federal regulations require drivers to electronically log the road hours they put in, which experts say will lead to greater compliance with the mandated 11-hour limit on driving shifts. Combined with the current shortage of qualified drivers, the new regulation will add even greater time pressures to an already stressed system – likely leading to higher logistics costs in 2018.

Seeking cost-saving alternatives on behalf of their clients, commercial printers and direct mail houses are turning to intermodal transport, using railways in tandem with long-distance trucking as an efficient route for paper stock deliveries. American Litho is on the cutting edge of this trend, with regular rail deliveries coming directly to our 300,000-square-foot facility in Carol Stream.

Read more about the shift to intermodal transport here.


Paper Market and Industry Trends   

February 2018

We have seen a number of price increases for all paper grades starting last July and the possibility exists this year. Below is the latest in market intel and trends.

  1. 40% of capacity is out since 2000.
  2. In the last 8 years, 1,240,000 tons have been removed from the paper industry
  3. In 2017 alone, 655,000 tons were removed because of Appleton and West Linn.
  4. Groundwood has lost 56% of its capacity since 2000.
  5. Of the top 5 remaining producers, only 2 are domestic (Sappi and Verso)
  6. Pulp is up $11/cwt since December 2016.
  7. Mills that do not produce pulp were Appleton and West Linn
  8. There was a graph of web prices from 2008 to 2018. Pricing is still below where it was in 2008.
  9. There is more volatility in pricing as you go down in grades.
  10. For the first time in US history, there were two Category 4 Hurricanes which made landfall.
  11. Discussion of the ELDs (electronic on board recorders) to record hours of service in trucks. This is reducing trucking capacity. Some smaller truckers just left the industry. Plus there is a shortage of drivers.

Every trucker can pick between 3 – 6 choices for his next load. Sappi is working hard to be the “Shipper of Choice”. Meaning that truckers do not have to wait to either load or unload. This was suggested for printers as well.

  1. PIA 2018 forecast projects print sales to increase 1.5 – 2.5% this year. Packaging, labeling, signage, POP, and direct mail are all segments expected to grow.
  2. Sappi and Catalyst are on web allocation NOW.
  3. Sappi is moving into the packaging world.
  4. Therefore, at the end of March through April, Sappi is taking 1 machine out of production to move it to packaging. That means 20% less product being produced in March.

OPINION I U.S. ECONOMY

February 9, 2018

Bloomberg released this report, the supply of truckers isn’t rising, so freight prices will soar and cut down demand. That’s bad for the whole economy.

Read More – The U.S. Is Running Out of Truckers


SAPPI Paper Price Increase

January 31st, 2018

Effective on the first of this month, Sappi North American has begun a price increase on orders that have been booked with a delivery date on or after February 5.

This 4%-7% transactional price increase is relevant to the following products:

  • McCoy Web
  • Opus Web
  • Somerset Web
  • Flo Web
  • Galerie Web

Coated Stocks Resolute Price Increase

January 31st, 2018

Effective March 1, Resolute Forest Products will raise its ResoluteGloss, ResoluteBlonde, and ResoluteBrite 76 papers by $40 US/st.

While this change in coated paper price was something American Litho anticipated last year, we continue to work strategically to minimize the impact on your brand.


Catalyst Paper Price Increase

January 31st, 2018

Beginning on the first of next month, the transaction price for several grades of Catalyst paper will be increasing by $2.00/cwt. The Coated Freesheet Grades increasing include Orion and Vision, while the Coated Groundwood Grades include Escanaba, Dependoweb, Capri, and Consoweb.

American Litho continues to watch and anticipate changes in Coated Stock pricing, partnering closely with supply chain partners to get you the greatest value.


Truck Shortage Forcing Companies to Cut Shipments or Pay Up

January 25th, 2018

We are working closely to monitor the nationwide trucking shortage. Factors like record-level freight volume and bad weather means the hard choice between:

  1. Postponing all deliveries
  2. Paying more to jump in front of the line.

Read more about the shortage here. 

American Litho is working with national and local trucking partners to minimize costs increases and keep your shipments at the front of the line.