An unrealized recovery

It appears as if paper stock markets will remain sluggish throughout the fourth quarter of 2014, failing to deliver on the earlier expectation that modest improvements in the domestic paper and paperboard industry seen previously this year would lead to a more robust recovery.

Figures from the American Forest & Paper Association (AF&PA), Washington, showed that total boxboard production increased by 1.1 percent in August 2014 compared with August of last year. Further, August 2014 figures showed a modest 0.8 percent improvement from July 2014. This information generated optimism among some paper stock dealers.

However, improvements have not been seen across all recovered paper grades. The AF&PA reports that kraft paper shipments for August 2014 dropped by 1.9 percent from the previous month, driving shipments for the first eight months of the year down 3.5 percent from the same period during the prior year.
 

The shift from modest recovery to static at best appears to be the result of an overall economic slowdown in China. Recovered fiber consumers in China, a top export destination for the material, have been scaling back their purchases of many bulk paper stock grades in light of the country’s economic difficulties. Several exporters say that while buyers for Chinese mills are still placing orders, interest seems to be flagging.

The slowdown in shipments to China has allowed U.S. board mills to aggressively push down OCC (old corrugated containers) pricing. Additionally, after aggressively purchasing OCC earlier this year, many board mills have fairly healthy raw material inventories and are not actively buying more than their contracted tonnages.

Domestically, the paper industry’s long-term problems continue, with a number of mills closing throughout the United States. Fusion Paperboard, a recycled paperboard mill in Versailles, Connecticut, recently closed, removing roughly 150,000 tons of 100-percent-recycled-content boxboard per year from the market. In closing the mill, which has been in operation since the 1960s, Fusion said it was unable to withstand many of the recent changes in the industry and could no longer operate in the increasingly difficult market conditions. “Despite recent efforts, the operation can no longer be sustained,” the company said.

Additionally, Kruger Inc., a paper company headquartered in Montreal, has announced plans to indefinitely shut down one of its newsprint machines and its deinked pulp plant operations at its Brompton mill in Sherbrooke, Quebec. The shutdown, slated for Nov. 14, 2014, will reduce the company’s annual newsprint production by 100,000 metric tons.

This decision adds to the steady woes newsprint producers have seen as they continue to experience lower demand for their finished product. A recent report from Boston-based RISI notes that August newsprint shipments to U.S. sources dropped by 12.2 percent, while the figure has declined by 7.2 percent over the first eight months of the year.

Mill closures were not limited to newsprint and board producers, however. The printing and writing (P&W) sector is viewed as even more challenging. Verso Paper, based in Memphis, Tennessee, has announced plans to shutter its coated groundwood paper mill in Bucksport, Maine, by the end of 2014. The closure is expected to reduce the company’s coated groundwood paper production capacity by approximately 350,000 tons per year and its specialty paper production capacity by roughly 55,000 tons. Verso Paper, however, is not a considerable consumer of recycled fiber.

Verso says it hopes to stem the steady erosion being seen in this sector through its acquisition of NewPage Paper, which also has a significant presence in P&W paper. That deal is expected to be completed by the end of 2014.