Modest markets

The domestic paper industry is in a state of flux. The containerboard sector has benefited from the recovering U.S. economy and from consolidation that has created more dominant and healthier companies. Meanwhile, the domestic newsprint and printing and writing (P&W) sectors continue to suffer from declining demand. Even with the U.S. economy improving, neither of these recovered fiber grades have benefitted.
 

Consolidation as survival

The P&W segment continues to be affected negatively by the shift to digital media. The “paperless” office may still be largely a myth, but demand for most grades of P&W papers has declined appreciably.

Derek Mahlburg, a senior economist with the paper research group RISI, headquartered in Boston, says coated freesheet markets are reasonably stable at present. This paper grade has benefited from its use in the advertising and direct-marketing sector. And, as the U.S. economy has steadily improved, coated freesheet demand has held up better than many other P&W grades.

Despite the recent strength in coated paper, producers are recognizing the importance of controlling capacity to bring supply and demand into balance. Reflecting this and related challenges in this segment, FutureMark Manistique in March 2015 announced plans to close its recycled-content P&W paper mill in Manistique, Michigan. In a statement announcing the closure, Matthew Nightingale, CEO of Manistique, says, “This is an extremely difficult decision for us given the exceptional efforts put forth at the Manistique mill since it emerged from bankruptcy in 2012 to reposition the mill’s grade mix and invest strategic capital to improve the operational and financial performance of the mill.

“Despite this progress,” he continues, “the significant financial support from its ownership and lender group and the dedication and hard work of all the Manistique employees, the mill was unable to return to profitability and consistently achieve positive financial results.”

The shutdown is FutureMark’s second in the past year. The company permanently closed its Alsip, Illinois, paper mill this past August. That mill also produced coated publication and printing papers, predominantly from recycled materials.

When the Chicago-area mill closed, a number of paper recyclers said they were owed thousands of dollars for recovered fiber that had been shipped to the mill.

Consolidation through acquisition also is occurring, with Memphis, Tennessee-based Verso Paper, one of the largest coated paper producers in the United States, purchasing New Page Paper.

The deal, first announced in early 2014, was completed Jan. 7, 2015, after extensive review by the U.S. Department of Justice and only after Verso agreed to divest paper mill assets in Biron, Wisconsin, and in Rumford, Maine. Verso sold the assets to Catalyst Paper, a British Columbia-based paper company.
 

Blurred newsprint

More than any other paper grade, newsprint has been the victim of a societal change in the way information is shared. From its production peak about 15 years ago, the North American newsprint industry continues to decline.

The Pulp and Paper Products Council, a Canada-based association of forest products companies, reports that North American newsprint demand declined by 9 percent to 6.5 million metric tons in 2014, marking 15 consecutive years of decline.

The capacity cuts of the past year continue a long-running trend. From 2010 to 2013, roughly 1.7 million tons of newsprint capacity were removed from the market.

Despite the capacity reductions, RISI’s Mahlburg says he still expects to see sharp declines in newsprint demand and production over the next two years.

The struggles of the newsprint industry are not limited to the U.S. In the United Kingdom, Aylesford Newsprint, which was established in 1922, closed in February. The mill, which could produce 400,000 metric tons of 100-percent-recycled-content newsprint yearly, cited unsustainable market conditions for its closure.

The Aylesford closure followed Finland-based UPM’s closure of a newsprint machine in the U.K. in early February 2015.

Offshore markets have presented an opportunity for newsprint producers. In a recent market report, Paul Quinn, an analyst with RBC Capital, Vancouver, British Columbia, says export demand accounts for nearly one-third of total shipments.

However, partly driven by the strength of the U.S. dollar relative to other currencies, offshore demand has plummeted more recently. The RBC Capital report points out that after rising 32 percent in 2013, offshore newsprint shipments dropped nearly 7 percent in 2014 and are forecasted to decline by an additional 15 percent in 2015.

Several sources say newsprint producers in Russia and China have taken advantage of currency differences to export finished newsprint rolls to other countries, ultimately cutting into North American newsprint markets and into demand for old newspapers (ONP).

Given the glum outlook for newsprint, some companies have converted from newsprint production to packaging production. These companies include Packaging Corp. of America, which is converting a newsprint machine at its DeRidder, Louisiana, mill; SP Fiber Technologies LLC, which converted a newsprint machine at its Newberg, Oregon, mill to produce lightweight packaging products; and Atlantic Packaging Products, which converted an idled newsprint paper machine at its Whitby, Ontario, mill to produce recycled lightweight containerboard.

Although the results of these conversions vary, several sources say they expect additional shifts away from newsprint production to packaging, a comparatively strong segment of the industry.
 

Containerboard markets strengthening

A big driver for the improved containerboard market is the steady improvement in the U.S. economy.

Bill Moore with the recovered paper market research firm Moore & Associates, based in Atlanta, says North America will have added more than 2 million tons of recycled-fiber-based containerboard production from 2013 to 2015.

The bright outlook for the packaging sector means several formerly idled paperboard machines are being restarted. RockTenn, Norcross, Georgia, has restarted two board machines that it took offline earlier because of slow demand. International Paper, Memphis, Tennessee, also recently said it would restart a paperboard machine at its Valliant, Oklahoma, mill.

In addition to these restarts, Pratt soon will open its 100-percent-recycled-content paperboard mill in Valparaiso, Indiana.

With the strengthening in paperboard, companies supplying recovered fiber, especially old corrugated containers (OCC), likely will see pricing pressure. While the short-term situation is challenging, longer-term markets are brighter.

Dan Sandoval is senior editor of Recycling Today and can be reached via email at dsandoval@gie.net.