As we move closer to the new year, we can’t help but be hopeful about the continued stability of the paper market.
At the end of the quarter, although printer inventories have been worked down, there is still excess inventory in the supply chain while paper manufacturers’ operating rates are holding at historic lows.
In the Paper Market Unfolded Q2 2023, we cautioned our clients to expect a tightening in the market to appear in late Q3 and Q4 as we expect a typical ramp-up of demand in the late Q3 and Q4 timeframe, especially because of the equipment disappearing. Billerud’s attempted price increase at the end of Q2 was rejected by the market. Mills are desperately holding to price gains and will try to hold prices up. Coated and uncoated prices are expected to remain stable for Q4.
We expect mills to take downtime in an economic, calculated manner to try to prevent demand pressure. Mills have improved the economic burden of taking downtime, allowing mills more flexibility to control costs.
North American printing & writing (P&W) demand was weak in August, but there were some signs of life for uncoated grades. Demand for coated freesheet improved compared to June and July but still marked the grade’s fourth consecutive year-over-year loss of 45% or more.
Sappi Somerset PM 2, board machine, is currently down for maintenance as SPC witnessed during our Mill Trip to Maine in September. Sappi is lengthening the line to double the capacity of the current machine. Sappi is prioritizing both the enhancement of the board and packing machine as well as continuing to produce writing paper without neglecting either aspect.
Domtar announced that the Espanola mill, known for specialty uncoated grades, would be stalled for at least a year. This move forces the mill to be treated as a permanent closure in the uncoated freesheet capacity forecast. The baseline demand forecast includes enough recovery for uncoated freesheet operating rates to return to 91% in 2024 compared with 84% in 2023.
Billerud announced that the Escanaba mill’s maintenance in October will be extended by a week of market-related downtime. Their objective, similar to Sappi’s, is to transfer the paper machine to light SPS (board) because of the foreseeable demand forcing sustainable packaging.
We saw some light at the end of the tunnel for uncoated freesheet demand in August. Demand rose to its highest level since the first quarter after sinking to its lowest level of the year in July. The demand forecast has operating rates at 91% in the first half of 2024. The forecast encourages mills to avoid reducing prices while prompting buyers to take advantage of discounts during weak market conditions.
Coated paper demand in North America remained stagnant at low levels throughout August. Demand has suffered this year due to paper destocking and economic conditions. Additionally, heavy price increases for paper and postage impacted demand.
Coated paper is expected to climb 19% next year after the 35% fall projected for 2023. Operating rates are expected to remain neutral in 2024, prioritizing supply-demand balance through downtime.
The paper market is expected to continue recovering. Excessive inventory and low operating rates are largely a result of the industry’s focus on short-term demand balancing. The industry faces the challenge of adjusting the supply to meet the reduced demand or finding ways to operate sustainably under the new market realities.
The rising demand for uncoated freesheet and the anticipated 10% increase in demand in 2024 presents a positive outlook for the industry. However, the market is still facing headwinds due to destocking, and tight market conditions are expected to approach soon. Effective communication is essential to navigate through potential challenges and uncertainties.
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