Prices take another step up

It’s not a great time to be shopping for coated freesheet paper. Nine major paper companies — Domtar, Sappi Fine Papers, NewPage, West Linn, Verso, PineBluff, Appleton, Bowater, and Myllykoski — have announced price increases of $3 per hundredweight (cwt) price for the grade. A tenth, Stora Enso North America, announced a 7% increase on coated freesheet.

What’s behind the paper price hikes? A plethora of mill closures, for one. UPM-Kymmene Group’s mill in Miramichi, New Brunswick, plans to shut down its lightweight coated paper facility in late August for nine to 12 months. Tembec Coated Paper Group will close its coated paper mill in St. Francisville, LA, at the end of July. And Stamford, CT-based Fraser Papers on June 1 announced an indefinite shutdown of an off-machine coating production line at its East Papers mill located in Madawaska, ME.

These mill shutdowns “will partially offset the expected dip from the postal increase and allow the mills to keep pricing steady,” says David Goldschmidt, vice president of marketing, catalog division for Newport Beach, CA-based paper brokerage Strategic Paper Group. “I don’t believe we are done with consolidation and shutdowns as of yet,” he adds

Michael Wade, director of sales and marketing at Deerfield, IL-based distributor Wade Paper Corp., says the announcements by Tembec and Fraser Papers, in particular, will result in significant reductions of coated paper capacity in North America. “With increased energy costs and significant pricing pressures, these are not unexpected moves,” he says.

The postal increase is likely another factor in paper pricing. Wade says many clients have made significant changes in catalog page counts, trim size, or basis weight, which have resulted in less paper purchased. “Others have cleaned up their lists or pulled back on prospecting,” he says.

As a result, prices for coated freesheet could rise 4%-7% in the third quarter, says Dave Norman, director of purchasing for Menomonee Falls, WI-based printer Arandell Corp. The outlook for coated groundwood isn’t much better — Norman predicts prices for the grade could increase 3% to 5%. What’s more, he says with the catalog season starting up in July, lead times will push out for both groundwood and coated freesheet.

Excess capacity of the grade has led to “steady price erosion in the coated groundwood market since January 2006,” Wade says. “These indefinite closures and downtime taken by other mills could result in a more balanced supply/demand picture and allow mills to regain some traction in pricing.” What’s more, he says there is a possibility of higher pricing for the rest of 2007. “If end-users shift spending to other channels due to postal increases, this could lead to reduced paper requirements and more problems for mills.”

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