The paper market remains steady heading into the new year, a much different scenario than the beginning of 2023.
Printing & writing (P&W) demand is expected to show a dramatic drop in 2023, perhaps as much as 27%. Part of this dramatic drop is the overstocking of paper in 2022 which had printers working inventories down throughout 2023. Hope is on the horizon, however, with a projected 7% rebound in 2024 and moving toward a peak of around 65,000 tons per month.
Machine closure announcements for uncoated papers are expected to start in early 2024. Continued downtime by mills could eventually give way to permanent closures. For coated papers, permanent closures may be delayed until 2025 due to the small number of paper machines and the scheduled machine conversion at Sappi’s Somerset mill. It is improbable that North American graphic paper markets will achieve balance without significant supply reductions.
Uncoated Freesheet
Demand is moving in the right direction for uncoated freesheet as we are already seeing the anticipated demand rebound happening. The demand was 6% higher in October and November compared to Q2 & Q3. This is 63% of the anticipated total demand recovery for 2024.
In 2024, additional support for the paper demand recovery will come from the presidential election and nationwide return-to-office initiatives. The big contributor will be the destocking effect due to finally achieving right-sized inventory levels. Destocking had a significant impact last year, especially in Q1. It slowly started to diminish as we got further in the year and for the most part, has finished.
We don’t anticipate tightening marketing conditions with the demand rebound. Operating rates are expected to increase to 90% by the end of 2024. However, for the high operational rates to persist into 2025, a total of 380,000 tons of capacity reductions will have to take place over the next two years.
Coated Papers
Coated paper demand has an aggressive +16% forecasted rebound in 2024. Roughly half of the 18,000 tons per month of coated paper demand improvements were met by imports rather than from domestic mills. The first quarter isn’t looking as robust as signaled by the decreasing trends in print media and advertising based on current economic conditions affecting certain vertical markets. According to Competiscan, the year-over-year volume for credit card marketing was down significantly at 15%. In the lending space, direct mail volumes decreased to 768M, down 31% year-over-year and 10% quarter over quarter.
We suspect coated paper prices will stay steady or slightly decrease based on the appetite of the mills to hold onto business. Prices are currently steady with some room for negotiation based on the specific paper need and timing. Mills are highly motivated to keep machines running and operate at successful profitability models that the tight market has helped achieve. Another contributor to the steady price is the small amount of coated paper producers; there are only three main domestic producers. If there were more, price competition would be fiercer.
Closing Thoughts
In short, the paper market is experiencing a period of modest uncertainty while transitioning into the new year. While the uncoated freesheet market is showing signs of recovery, coated paper demand is struggling to catch up. The industry must find ways to balance supply and demand and operate sustainably under the new market realities. With the anticipated demand rebound in 2024, there is a positive outlook for the industry. SPC’s advice remains the same, effective communication is essential to navigate through potential challenges and uncertainties.
Starting in 2024, the USPS has updated its promotional calendar to include a customizable six-month window for for the Emerging and Advanced Technology promotion; giving marketers the ability to select their six-month window of opportunity. Also, new to 2024 is the Mail Growth Incentive. Head over to SPC’s blog to learn more details on how to register for the biggest credit offered to date.
Contact Ryan LeFebvre at ryanl@specialtyprintcomm.com for assistance in managing your business most effectively.
