Paper Market Update Q3 2020

Less than a year ago, the paper market was stabilizing, there was a growing shift to an excess paper supply, and expectations for price decreases were on the horizon.

That all changed in Q2 with the sudden spring lockdowns and restrictions, hitting every sector of the economy hard. Economists call it supply shock: businesses literally could not supply goods and services because they were shut down.

And while the paper industry was holding that excess of paper supply, there was little demand. High-impact advertising for travel and entertainment ended and orders for basic paper supplies plummeted as office workers and students moved home.

When the lockdowns and restrictions started to lift, there was cautious optimism that pent up consumer demand would meet the growing supply of services like restaurants, theaters, theme parks, gyms and hotels. But as the country and businesses have reopened, supply shock has been replaced by demand shock. America is justifiably cautious about otherwise normal activities. Plans for returning to work and school have been uneven. And consumers feel almost indulgent eating out, shopping or going to the movies, let alone traveling.

What Hits Offices, Schools and Advertisers Also Hits the Paper Industry

The pandemic has hurt North American demand for all grades of printing and writing paper and is expected to continue doing so through 2022.

  • Coated Freesheet domestic shipments fell 24% year to date.
  • Envelope demand is down -11% year to date.
  • Coated + SC (supercalendered: used for magazines, catalogs, newspaper) is suffering from advertising cuts and further deterioration of magazine publishing.
  • Demand for paperback books and mail-in ballots/envelopes has increased, and some mills are struggling to keep up.
  • Offset demand rose in September by 10%. The year to date demand is down -9.8%.
  • We can see that the COVID-19 pandemic has accelerated the age of digital file sharing in order to keep businesses running.

Mills in the News The State of Printing and Writing Paper: By The Numbers 

Although 2020 has been tough on the paper industry, Q3 has grown by historic proportions from the previous quarter. Following the unprecedented demand shock in the second quarter, third quarter has seen a promising uptick — though not yet returning to pre-COVID levels. And while the rebound was not industry wide, it seems meaningful for those markets that have chosen to embrace the restart of business.

  • Direct Mail, for most industries
  • Consumer Packaging, across most industries
  • Label Printing, in food, pharma and CPG packaging labels
  • Digital and Large Format, in-store and in-facility signage
Capacity Will Adjust to Demand

Barring further changes in capacity, the operating rate for paper mills is on track to drop over 10 points to 78% in 2020, before rebounding to 84% in 2021. But further actions to ‘right-size’ capacity may be necessary if anticipated demand is stalled or reversed as the pandemic drags on.

Availability for Standard Stock is Strong

With reduced capacity, mills are narrowing their product offerings. Where once there were several competitive options for a particular grade, now there may be only one or two. As you develop your project needs, keep in mind:

  • Standard stock remains readily available
  • Special, non-stock are experiencing longer lead times
  • Some mills are taking longer to deliver because of rewinds
Pricing Remains Steady for Most Mills

Despite the weakened market demand, mills have managed to maintain fairly steady pricing in most grades. As always, SPC can help you lock down the best prices, thanks to our strong buying power and financial standing.

Deliveries are Still on Track

Current levels of paper inventory for standard stock in the U.S. are extremely high. That means delivery times have remained steady. But as this supply dwindles, and new paper manufacturing declines, we could see a tight market emerge. To ease any potential supply shock in the future, mills are taking unannounced, rolling down time to manage the inventory. This might extend lead times for some orders.

Mills in the News

Verso Shuts Down Paper Machines at Two Midwest Locations

In June, Verso announced the ‘indefinite idling’ of its Wisconsin Rapids mill. By year’s end 902 employees at the plant will be jobless, unless market conditions change or a new owner is found. A second plant in Duluth, MN will also be shuttered. Wisconsin Rapids is a key player in the U.S. paper industry, with roots going back to 1894. With this single closing, 16 percent of coated free-sheet capacity is gone. The mill ran up inventory to prepare for this announcement, creating a surplus of paper in the pipeline until demand catches up with the reduction of capacity.

Final Thoughts

“Just 36 hours before this Q3 Paper Market Update was scheduled for release, Verso surprised the paper and print industry with an approximate 3% price increase for all coated freesheet orders delivered on/after December 10th. We can only speculate as to the root cause for Verso’s late-breaking announcement. 

Notably, their key competitor, Sappi, has no plans to follow this unusual pricing strategy. This could change based on how much business printers move from Verso to Sappi, and whether there are additional mill closures. For now, SPC will continue to source and deliver the best product and service, at the best value. Our first priority is to always protect our client’s best interests.”

– Ryan LeFebvre

Despite all the unknowns, you can still rely on two things: First, creative direct mailings are still seen more than any other channel making it the most powerful tool to differentiate your brand. Second, SPC is here to help. Contact your sales rep to help you prepare in advance for your campaigns and take advantage of SPC’s buying power for paper purchases.

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