Still waiting for good news

The future is anything but certain for paper prices in 2006. Recent mill closures, a possible strike at Stora Enso’s mill in Port Hawkesbury, Nova Scotia, and uncoated freesheet price hikes effective this month could give way to a tighter groundwood market — and more price hikes across the board.

Rick Dethloff, director of purchasing for Menomonee Falls, WI-based printer Arandell, doesn’t foresee a price hike for coated papers in the first quarter of 2006. “If business comes on strong at the first of the year, paper companies would be looking to get an increase through at least in the coated groundwood, and of course coated freesheet would follow.” If the cost of coated papers does go up, Dethloff says the average increase would be $3 per hundredweight (ctw), with higher increases for lower grades of paper and lower increases for higher grades.

Second-quarter prices should remain flat, says Dethloff, with small increases in the third quarter and increases of 7%-10% in the fourth quarter if demand remained strong.

International Paper, Weyerhaeuser, and Domtar have already raised the price of uncoated freesheet $2.50/cwt-$3.00/cwt on the majority of its grades. The increases followed six months of flat pricing for uncoated freesheet.

Supply, demand, and shutdowns Demand for paper traditionally ebbs in the beginning of the year, in the wake of consumer catalogers’ holiday and clearance mailings. This month’s 5.4% postage increase is expected to suppress demand further. But though supply typically increases as demand decreases, mill closures will prevent paper inventories from rising — and are likely to contribute to more price increases.

For instance, UPM-Kymmene Group’s Miramichi, New Brunswick, mill, which produces lightweight coated paper, plans to shut down for three months beginning Feb. 1. Montreal-based Domtar announced in late November that it plans to permanently shutter its Cornwall, Ontario, mill and parts of its Ottawa mill. It also intends to sell its Vancouver mill. Federal Way, WA-based Weyerhaeuser closed several mills in late October. Kingsey Falls, Quebec-based Cascades plans to close its Thunder Bay, Ontario, facility for good by Jan. 21. And Pasadena Paper Co. was forced to permanently close its coated-freesheet mill in Pasadena, TX, after Hurricane Rita ravaged the Texas coastline in September.

Michael Wade, director of sales and marketing at Deerfield, IL-based distributor Wade Paper Corp., blames the Canadian closures on the high price of pulp and energy and the weakness of the U.S. dollar. “It’s kind of a sad state that the market is in,” he says. “Only the strong survive. And because of the strength of the Canadian dollar, most of the volume comes from the U.S.,” which hurts the bottom line of Canadian mills.

Then there’s the possible strike at Stora Enso’s Port Hawkesbury mill. At press time, the workers and the company had until late December to come to a settlement before the employees could strike. David Goldschmidt, vice president of marketing, catalog division, for Strategic Paper Group, a Newport Beach, CA-based paper brokerage, believes that if the mill, which produces mostly supercalendared (SC) paper, is hit by a strike, more customers will be pushed to use groundwood. And such a spike in demand for groundwood, he says, could in turn lead to price increases.

But John Maine, vice president of Bedford, MA-based forest industry research group RISI, doesn’t think labor issues will lead to price hikes this year. In fact, he thinks that because of the weaker demand, “there is likely to be some downward pressure on prices in 2006.” He does add a caveat, however: “Offsetting that downward pressure is upward pressure in mill production costs. Many of the mills are trying to implement surcharges to offset increases in prices in transportation and energy.”

Reducing paper consumption A number of mills in October and November added fuel and energy surcharges of $0.50/ctw-$1.25/ctw to offset increasing fuel costs. “The increases that were implemented for the energy and fuel surcharges, I think they’ll stick,” says Arandell’s Dethloff. But some mills, Goldschmidt says, have already rescinded the charges because of falling gas prices.

Jim Ray, owner/president Lynchburg, VA-based McFeely’s Square Drive Screws, has already reduced his catalog from 100 pages to 88. McFeely’s uses 36-lb. coated #5 for its inside pages and 50-lb. or 60-lb. coated #4 for its covers. “When increases come through, it forces me to look real hard at what’s not carrying its weight in the catalog,” says Ray. “There’s some benefit to these increases because it makes you look harder at what you’re doing.”

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