2024 kicked off with mills paying close attention to several variables that will shape the stability of the paper market:
Lower order volumes
Mills face the challenge of maintaining a balance between predicted lower order volumes and operational efficiency. Mills are not looking to add too much to existing inventory levels, although the slight inventory build is still nowhere near pre-pandemic levels. Some mills are showing price flexibility on larger programmatic orders/programs based on whether it is a good fit for their manufacturing effectiveness.
A powerful one-two punch on the horizon
Mills cast hopeful glances toward the fall as the approaching national election combines the with traditionally busy shopping & healthcare enrollment seasons.
Stubbornly high interest rates limit financial marketing spend
Loan & mortgage rates were forecasted to methodically come down in 2024, but it has yet to materialize, keeping a lot of financial sector marketing spend on the sideline. Q1 direct mail volume in financial categories was down 35% from Q1 2023, according to Competiscan. Look for marketing mail volume to dramatically expand when rates finally start to fall.
Catalog marketers testing new efficient formats
We are seeing growth in smaller self-mailer formats that are more cost-efficient and, in some cases, more tailored to specific product lines or consumer segments.
More USPS postal increases are on the way
Consumers and businesses alike are feeling rate hike fatigue as another wave of increases might force marketers to re-think their marketing spend.
What to expect for the remainder of 2024
With the recent industry-wide price increases in the rear-view mirror, we are looking for price stability for the remainder of 2024, with the possibility of a slight decrease in paper prices after the fall holiday season.
Coated Freesheet
As of February, operating rates were at 73%. Operating rates remain the most challenging for coated freesheet due to demand. Right now, supply is the major reason for any disparity. In the first two months of this year, the overall demand was down 7.3%. Import levels are still below those of 2023, indicating that destocking is not yet complete. To match the current demand levels, mills’ inventories have been adjusted accordingly. Since the operating rates are not high, it leaves room for imports in
Uncoated Freesheet
Uncoated Freesheet is currently operating at a healthy rate of 87%. Uncoated freesheet demand recovery remained on track with our expectations of a 4% gain in 2024 after the 21% decline in 2023. In our last Paper Market Unfolded Q4 2023, we already saw the demand rebound happening and it has continued into 2024. Mill inventory levels are adequate and even slightly higher than required. The demand in February declined by less than 1% YoY and YoY gains are expected to resume by April.
The big story of the first quarter for uncoated freesheet was the implementation of 5-7% price hikes, which took effect in early April. The first notice of a price increase was issued on March 1st, which led to a chain reaction of other mills following suit. These price hikes were driven by both capacity issues and increased cost pressures on mills. We anticipate prices to remain unchanged through Q3 unless there is a significant surge in demand during the latter half of the year.
Domestic Mills
- Boise Paper initially raised prices by $5.00/cwt US on private label and branded office papers, print papers, and converting papers effective with shipments on or after April 1st, 2024. This has since been reduced to $3.00/cwt.
- Sylvamo announced a price increase of 5-7% on converting papers, printing papers, and office papers effective with shipments on or after April 5th, 2024.
- Finch announced a price increase of 5-7% for all grades: finch printing, converting, publishing, digital/inkjet, technical specialty, and office papers effective with shipments on or after April 5th, 2024.
- Domtar announced a price increase of 5-7% on printing and publishing papers, converting papers, office papers, specialty papers, and technical papers effective with shipments on or after April 8th, 2024.
- Sustana announced a price increase of 5-7% effective with shipments on or after April 8th, 2024.
- Pixelle Specialty Solutions announced a price increase of 5-8% effective with shipments on or after April 15th, 2024.
International Mills
- Portugal-based The Navigator Company announced that it will increase its uncoated free sheet (UFS) paper prices in overseas markets by up to 5%, effective with March production.
Imports made up 9% of the total consumption of uncoated free sheet (UFS) paper in North America in 2023. Industry insiders have stated that the United States is expected to import more UFS paper this year than last year, as domestic supply/demand is likely to be firmer. High US price levels will continue to attract imports. The possibility of domestic competition heightens with the narrowing gap between coated freesheet and offset rolls.
Other Mill Updates
Domtar announced an indefinite reduction in paper operations at its Ashdown facility located in Ashdown, Arkansas by the end of June. This move reduces Domtar’s annual UFS capacity by 216k tons. Domtar also scheduled downtime at its Windsor, Quebec Canada UFS mill for April, temporarily reducing the mill’s UFS capacity by an estimated 40,000 tons.
With the capacity reduction and long maintenance outages, we could see operating rates grow to the 90-95% range in early Q2.
Finnish Transport Union Strike
The strike that started on March 11th was resolved in mid-April. The decreased capacity at those owned by UPM and Stora Enso equated to an opportunity for mills outside of Finland to fill the gap.
In early 2022, there was a four-month strike at UPM’s mills which greatly affected North American imports from Europe. If the current strike doesn’t find a solution soon we could see history repeat itself in this situation. Less market pulp to go around might cause more problems for imported goods. It could also make the cost of pulp even more expensive for non-integrated mills, both in North America and in other countries.
Sustana Rebrand
Sustana is rebranding its subsidiary companies including Sustana Fiber, Rolland, and Hanna Paper under the United Sustana umbrella. This strategic move aims to streamline operations and enhance the commitment to sustainability.
Imports
Imports of coated paper surged in January, leading to an upward rise in US demand. It is assumed that the surge partly represents inventory build rather than true strength for underlying demand. Coated Paper offshore imports surged 25,000 tons in January, the highest level we have seen since January last year.
Due to a surge in the United States imports of coated papers and the Finnish Transport Union Strike, there has been uncertainty in the near-term P&W forecast. It is anticipated that there will be a weaker surge in imports for Q2. However, it is still projected that North American P&W demand will increase by 4-5% in 2024 after experiencing a 28% collapse in 2023.
Closing Thoughts
Several factors influence the state of the paper market and we need to see how they will unfold. We are uncertain about the impact of interest rates, and we will continue to observe reserved investment in the financial sector. Additionally, we are keeping an eye on the July postage increases to gauge their effect on demand. Despite the current uncertainty, we can anticipate price stability for both coated and uncoated paper until Q4.
SPC recommends that you plan ahead, especially when it comes to programmatic work. If you have a quarterly project coming up, please share the full schedule with us so that we can offer you more strategic options. This will ensure that you see all your choices and put your best foot forward. As we move ahead, SPC will keep you informed about how the market continues to evolve in 2024.
