Uncoated Freesheet: Domtar, IP set 5-7% hikes; buyers’ concerns grow over supply constraints | April 24, 2018

OAKLAND, CA, April 20, 2018 (PPI Pulp & Paper Week) – Against a background of rapidly rising manufacturing costs, robust demand and tightening supply, North America’s largest papermakers embarked on a fresh round of across-the-board uncoated freesheet (UFS) price increases. The new, mostly $2.50/cwt ($50/ton) hikes come as the last remnants of February’s $40 UFS price hikes are settling into the North American market.

First out on Apr. 16 was the No. 1 by capacity, Domtar, which announced 5-7% hikes on converting, printing and publishing, and business paper products, which become effective with May 16 shipments.

No. 2 ranked International Paper (IP) on Apr. 20 set a 5-7% increase for May 21, while No. 3 Packaging Corp of America’s (PCA) Boise Paper on the same day announced a $2.50/cwt increase effective May 21. Also, Verso, Glatfelter, and Flambeau River Papers also set similar-sized increases the same day. Finch Paper, the Navigator Company and American Eagle also set 5-7% increases..

“It’s hard to say it’s demand driven, but fundamentally, shipments, costs, and capacity all support it,” one UFS mill contact said. “We are still not back to historic published pricing – certainly not anywhere near previous highs. Prices are lower than they were five years ago.”
“The market is super tight and I am not surprised that mills have started to announce for May price increases,” agreed a source with a major commercial printer.

Sources predicted buyers with discounted business would come under pressure to move closer to list prices.
“They need to raise prices if they are going to make money (and) they are trying to raise the bottom end where big users are buying,” one merchant contact said.

“The cost of freight, people, and pulp is all going up, and there’s not enough of the last increase dropping to the bottom line,” another merchant said.

Norpac jumps in. First to match Domtar was Norpac, which on Apr. 16 set a $2.50/cwt ($50/ton) increase effective May 16 on all its offset, wove, and cut-size grades. Norpac’s relatively small amount of UFS production puts it at the opposite end of RISI’s capacity rankings from Domtar’s leadership position. But its Longview, WA, mill will become the only UFS manufacturer in the Pacific Northwest after next month’s scheduled shut of Georgia-Pacific’s (GP) No. 20 paper machine and two sheeters at Camas, WA, and the conversion to linerboard of the No. 3 Boise Paper machine at Wallula, WA, by PCA.

The Wallula machine produced about 77,000 tons/yr of mostly label and printing/converting paper, while the Camas PM made about 166,000 tons/yr of office and copy paper – about 5% of US shipments – and 71,000 tons/yr of printing and converting grades. Once the Camas PM is retired, GP will only make UFS at its Port Hudson mill in southeastern Louisiana.

“Commercial printing in the western two-thirds of the US will have to be serviced out of Port Hudson, which adds to freight costs,” said one merchant contact.

Sources said Port Hudson is already being ramped up, but there was also talk of it not yet performing to expectations.
More than one contact also spoke of growing tightness in the cutsize market, citing seasonal pickup for school bid business combined with capacity changes that have impacted UFS production over the past few months.

Cut-size tightening? “Allocation/reservation on monthly tons allotted – basically limited availability to average historical tonnage purchases. We’ve seen this on offset, now it may spread to cutsize,” one contact said.

“Cutsize is tightening as well as offset. Something has markedly changed in the sheet market – the same customers are on the phone every day trying to get a position,” a mill source said.

Another producer contact said that some mills’ cutsize inventories are low, so shipments are being taken from allocations for the following month and mills are trying to manage demand forecasts to replenish them.

“A lot of delays are being issued,” the contact said
“There is tightness in cutsize at the mill level (but) domestic suppliers only,” agreed a merchant contact, who added “there still seems to be enough paper around, but at higher prices.”

Looking ahead, one mill company official even expected, based on the market conditions, that this May increase would be the second of a total of three price increase attempts this year in UFS.

As for offset, buyers and sellers alike confirmed that there’s been no let-up in the ongoing tightness.

“We are taking no orders all the way out until August, and people are lining up at the door. Some are in panic mode because if they end up losing their position they can’t get back in,” a mill source said. “(Major producers) aren’t entertaining any more business and are raising prices. The merchant side is struggling to get smaller accounts served. Given world pulp prices, I don’t see anything changing.”

Merchant sources spoke of mill backlogs from 45 days to “close to 60 days” and one said mills are charging a $6 to $8 premium on new pieces of business.

“Most mills are full and really don’t want any more business on commodity grades,” one source said.
‘Inflationary environment.’ “I don’t think most end-use customers have come to grips with what is going on,” another contact said. “We’re in an inflationary environment that people aren’t used to, and pulp and freight are going to drive this for the next 36 months. We’re preparing for another record year of bad debts.”

“We’re very concerned on the impact on overall demand of cost inflation,” yet another merchant source said. “If somebody’s print budget is blown in the second half of the year, what are they going to do – print less or go digital? If you’re a cataloger and you’ve been on freesheet and you want to go down to groundwood, good luck!”

The source allowed that rising paper prices could accelerate the demand drop in print, but said “if print work is only possible when prices are so low that mills can’t make money, then some of it needs to go away.”