Stabilizing Demand
The story of 2024 continues to be the long road to demand recovery. Demand has increased by about 7% year to date. However, there was a slight decline of 0.2% in paper shipments in August, marking the first drop after six consecutive months of year-over-year growth. This decline suggests the recovery has slowed down a bit. The back half of the year typically sees strong output so we can expect strong demand growth in Q4.
Big USPS Announcement
USPS announced no January price increases for stamps or dominant products. Postmaster General DeJoy said the USPS will wait until at least July before proposing any increases. This break is much needed after the 7.8% increase in July 2024.
Looming Strike
The International Longshoreman’s Association (ILA) strike started on Tuesday, October 1st, and lasted three days. The ILA is North America’s largest union of maritime workers. The strike may recur again in January. We expect this strike to tighten up the uncoated freesheet market, which could affect prices if it becomes a lengthy event. This strike has little to no effect on SPC’s paper orders or delivery.
We are also tracking another possible strike at the Sappi Paper Mill in Skowhegan, Maine. Members of USW 4-9, and Sappi will be meeting in mid-October to continue negotiations. Although this strike will not stop production, it could delay the January machine conversion from coated freesheet to boxboard grade.
Imports Remain High
Imports continue to remain high due to the strength of the U.S. dollar, oversupply in Europe, and the low cost of operation. Mills were ramping up on imports in anticipation of the East Coast strike and building their inventory levels ahead of it. A concerning aspect of imports is the lengthy supply chain and uncertainty surrounding delivery times. Despite that concern, imports are needed to meet our overall domestic demands. The imports are needed more for web paper as opposed to sheets.
Uncoated Freesheet
Uncoated freesheet demand improved slightly in Q3 and is the only grade of graphic paper to have a year-over-year growth in demand and shipments in August. Although uncoated freesheet has had a robust recovery this year, demand is expected to rebound 2-3% in 2025 rather than the previous 3-4% gain projection.
As mentioned in our last Q2 Paper Market Update, there were multiple mills idling machines or exiting capacity from the uncoated freesheet market, bringing the total capacity reduction in 2024 to more than 5% of the industry total. The improvement in demand and shipments has held the non-seasonally adjusted operating rates to 90%. It will be challenging for operating rates to get over 90% without more capacity reductions unless demand increases.
Coated Papers
Coated freesheet demand is continuing on track for a strong recovery in 2024. Capacity will be decreased by roughly 480 million lbs at the end of January 2025 due to Sappi converting the Somerset mill’s PM 2 to packaging grades. Willamette Falls Paper’s West Linn mill was idled in August and SPC believes there is a strong likelihood it will be permanently shut down. The mill’s 300 million lbs of capacity will remain out of the market. Due to these two mill reductions, operating rates are expected to rise to about 88% in 2025. Which will be an improvement from the >80% level in 2023-2024.
Closing Thoughts
The industry anticipates stability for the remainder of the year and into 2025. We expect prices to remain flat. Our advice is to communicate with your SPC representative to help in planning the best paper options to meet timing while minimizing cost. If you have programmable work and work with increased lead times, you will have a better chance for better pricing. Overall, the paper market is navigating through a period of change and readjusting to the new normal. SPC will keep you informed, helping you navigate the evolving landscape of the paper industry.
