North American Newsprint Market Loses Ground

(Forestweb.com) While U.S. domestic demand for newsprint has been sluggish for most of this year, overseas demand has been up and down and showed signs of an upturn as recently as July. This would have added more support to the industry's attempt to raise U.S. newsprint prices by $50/ton effective September 1. However, August overseas shipments turned sharply down again, according to the latest statistics released recently by the Pulp & Paper Products Council of Canada (PPPC).

Total North American overseas shipments of 179,000 tons in August was down 19.1% from a year earlier, and year-to-date was down 6.8% to 1.623 million ton. Even Latin America, which had been fairly strong this year, saw shipments plummet 33.2% in August but were still up 2.8% year-to-date. The only overseas market that improved in August was Asia (excluding Japan), with shipments up 1.4% for the month but still down 10.0% year-to-date. Shipments to Western Europe dropped 3.7% in August and were off 16.9% year-to-date, and Japan was down 17.0% for August and down 5.9% year-to-date.

North American shipments to all destinations, including domestic markets, totaled 1.066 million tons in August, a drop of 3.6% from a year ago, while year-to-date shipments of 8.877 million tons was off 2.3% from a year ago. Within North America, August shipments were flat at 888,000 tons (up just 0.2%), while year-to-date shipments of 7.254 million tons were down 1.2%. Shipments to both Canada and the United States were about flat for August but year-to-date showed declines of 2.0% for Canada (724,000 tons) and 1.1% for the U.S. (6.530 million tons).

Consumption numbers were also depressed, once again showing no signs of an upturn. Total U.S. consumption in August was about flat from a year ago (down 0.4%), and year-to-date was down 1.6% (6.547 million tons). Consumption by U.S. dailies was off 1.4% for August (633,000 tons) and off 1.2% year-to-date (5.279 million tons). The number of Sundays for both the month and year-to-date were the same in both years.

Ad lineage at U.S. dailies grew 2.1% in July and about the same year-to-date, according to the PPPC. However, market observers said this has not been helping increase newsprint consumption. "Every month that goes by with no demand growth reinforces the notion that the structural forces pressuring the industry have grown more intense," noted Mark Wilde, an industry analyst with Deutsch Bank

Demand Flat, Stocks Grow

Total U.S. newsprint demand was about flat for both August (794,000 tons) and year-to-date (6.682 million tons). Canadian demand also leveled off for August (87,000 tons) but dropped 2.0% year-to-date (739,000 tons). Total North American demand showed no growth both for August (908,000 tons) and year-to-date (7.475 million tons).

At the end of August, North American newsprint inventories were higher at both consumer and mill levels from a month earlier. Adding the growth of 16,000 tons in mill stocks to the growth of 27,000 tons in all U.S. user inventories exceeded the typical 39,000 ton seasonal August increase, according to Wilde. "Inventories remain at the high end of a normal range," he said.

However, PPPC indicated that U.S. dailies had increased their stocks by only 8,000 tons, which is less than the 5-year average of 22,000 tons. Also, in terms of days of supply, all U.S. user inventories dropped by 4 days during August and stocks at U.S. dailies fell by 5 days during this time. This brought inventories at both all U.S. users and U.S. dailies to levels just 1 day ahead of a year earlier, to 39 days' supply at all U.S. users and 42 days supply at U.S. dailies.

The PPPC also noted that the 16,000 ton jump in North American mills' stocks in August was "right in line with the five-year average. At 343,000 tons, mill inventories remain 17% (or 72,000 tons) below the historical average. Taking a closer look at those stocks indicates that those designated for the domestic market were reduced by 19,000 tons in August, whereas stocks designated for overseas markets were increased by 34,000 tons," reported the PPPC.

In a move related to inventory figures, the PPPC this week announced it had revised the inventory figures for "Other Users," also referred to as non-daily users. Several surveys had been conducted over the past few years to determine what should be done. As a result, newsprint stocks held by U.S. non-daily users were revised downward by 105,000 tons.

The association noted that this revision had no effect on consumption data, demand data, or any data relative to U.S. dailies. Also, there was no effect on month-over-month or year-over-year trends, "since it is the total level of stocks that has been revised downwards for the entire time-series," the PPPC said.

Production Down Overall

Meanwhile, the latest PPPC newsprint production figures show that output at North American mills fell 5.8% in August compared to a year earlier. This brought year-to-date North American production to a level of 8.918 million tons, down 2.5% from the same period in 2003. U.S. production was down 3.8% for August (417,000 tons) but about flat for year-to-date (3.440 million tons). Canadian production, however, was down by 7.1% in August (665,000 tons) and off 4.4% for year-to-date (5.478 million tons).

This brought the newsprint operating rate in North America to 93% in August, down 1% from a year earlier, while the year-to-date operating rate of 93% was the same as a year ago. The Canadian newsprint operating rate fell 2% to 91% in August and was down 1% to 93% year-to-date, but the U.S. newsprint operating rate was flat at 95% for August and up 2% to 94% year-to-date.

Wilde indicated that the August statistics are not weak enough to "torpedo the current September 1 $50/tonne price initiative, but they won't do much to further the cause. ... Half a loaf still looks like the best assumption on the current hike attempt."

The latest results from the FOEX Indices Ltd. indicate that U.S. newsprint prices increased more than $12/ton during the first two weeks of September but were up by less than $1 to $545.73/ton during the latest week. FOEX reported that most quotes were either unchanged from the previous week or "modestly" higher.

As newsprint statistics month-after-month fail to reflect a strengthening market that can fully support newsprint price increases that producers need to boost revenues and eliminate operating losses -- particularly Canadian mills, as the Canadian dollar rises -- other measures are being considered.

"Longer-term we are sensing that the producers are getting more comfortable with making the tough choices, and are looking at capacity conversions to other grades if things fail to improve," noted Wilde, who last week reported that Bowater Inc. was "considering large capacity conversions that could be part of a substantial downsizing of the North American newsprint supply base."