paper

Pulp & Commercial Paper Trends

Industry Insight

Date November 2018

Projected Values - Pulp and Paper

 

  • U.S. pulp, paper, and forest products producers posted strong sales in the third quarter of 2018, following a record-breaking second quarter, setting the industry up for its best year in decades
  • Strong demand for bleached kraft paper has increased pricing approximately 20 percent year-over-year through November, and prices are expected to increase again in January 2019
  • Shipments of recycled paper to China are down significantly as the U.S. faces tariffs on fiber pulp extracted from recycled paper and cardboard, following a ban on imported recycled materials into China

 


 

Approximate net recovery on cost


Synopsis

Kraft prices increasing: U.S. pulp, paper, and forest products producers posted strong sales in the third quarter of 2018, following a record-breaking second quarter, setting the industry up for its best year in decades. Strong demand for bleached kraft paper (southern and northern) has increased pricing approximately 20 percent year-over-year through November, and prices are expected to increase again in January 2019, based on information from RISI. Bleached pricing has been helped by the strong demand for uncoated freesheet (UFS) paper that has reduced output of bleached packaging grades. UFS 50-lb offset paper pricing was up by 15 percent in October year-over-year. For bleached kraft paper domestic supply has been challenged recently especially for bleached twisted handle and bleached kraft grocery bags. Industry operators have described the market’s supply-demand condition as “extremely tight” as of November. Kraft paper has provided a good substitute for plastic bags this year as well; it is causing a resurgence in the production and sale of kraft paper bags.
 

Tariffs impact paper markets: In March 2018, a tariff of up to 32 percent was imposed on Canadian groundwood paper (primarily used for newsprint) after a Washington state-based newsprint supplier, The North Pacific Paper Company submitted a complaint to the U.S. Department of Commerce that discounted product was being dumped on the market by Canadian suppliers. After the tariff went into effect, many smaller, at-risk newspapers struggled to handle the increase in production costs, which in turn, lead to layoffs and page-count reductions. Newspaper industry groups lobbied Congress to pull back on the tariffs, noting that the additional duties were detrimental to an already struggling industry. Subsequently, the Department of Commerce announced in August that it would make the tariff permanent, albeit at a lower rate, when it was determined that Canadian product was not being offloaded to the extent originally thought. The new tariff will be capped at 16.88 percent, with certain Canadian suppliers paying more than others based on volume. The tariffs are intended to help U.S. paper mills compete against Canadian producers accused of receiving government subsidies and selling their paper at below-market prices to U.S. customers.
 

The news is not as positive when it comes to the paper product recycling industry. In August 2018, China’s latest retaliatory tariff proposal against the United States was announced, and is aimed at recovered fibers including paper, newspaper, and cardboard. The Chinese proposal contains four product lists with tariffs levied at different levels, from 5 percent to 25 percent. The list of products to be hit with a 20 percent tariff includes “fiber pulp extracted from recycled paper or cardboard.” The tariffs come about 18 months after China’s announcement that it would ban most plastics and other recycled goods from the United States. Based on information from Waste360, China has been the top importer of U.S. recycled paper, importing 16.2 million tons of U.S. recyclables in 2016, or more than 40 percent of the total U.S. recyclables exported (and more than 30 percent in 2017), and 13.2 million tons are now being diverted from China to other markets. As noted by the director of federal affairs at Waste Management (the largest U.S. recycler), the company shipped 27 percent of its fiber to China in 2017, which fell to 5 percent in the first quarter of 2018 and to zero in May. The U.S. domestic average old corrugated cardboard (OCC) price has dropped nearly 60 percent from the summer of 2017, though it seemed to be stabilizing recently according to RISI. In the case of mixed paper, it remains virtually worthless and increasingly has to be landfilled.
 

Some Chinese companies have recently taken advantage of the escalating trade war with the U.S. In May 2018, Nine Dragons, the largest paperboard producer in Asia, bought two pulp and paper mills in Maine and Wisconsin from Canada-owned Catalyst Paper Holdings. Similarly, in August, China’s third-largest recycled paper producer signed a deal to acquire a mill in Kentucky. These acquisitions allow those companies to sell directly within the U.S. and to ship paper re-manufactured in those mills back to China without paying a tariff.
 

Paper types and characteristics: There are multiple types and grades of paper for a variety of uses ranging from newsprint to fine stationery. Grades are reflective of manufacturing cost and subsequent wholesale and retail pricing, with more refined paper types at the higher end.
 

Generally speaking, if paper is pre-colored for a specific purpose, it will have a lower recovery value than plain white paper. Following are the four general categories of paper on the market.

  • Groundwood paper, such as newsprint, is made from mechanically ground wood pulp that contains impurities left from the tree.
  • Free sheet paper is made from pulp that is heated and chemically treated to leave it free of impurities.
  • Text (derived from texture) paper is free sheet paper that comes in a wide variety of colors and surface patterns. There are many kinds of free sheet paper; all are created to appeal to graphic designers and others who utilize paper to create unique looks for brochures, presentation folders, and other printed collateral.
  • Uncoated book paper is general-purpose paper used for everyday printing. It is widely used in publishing and direct-mail advertising. This type of paper can be rough- or smooth-surfaced, and comes in a variety of colors, although less than for text paper. The terms “uncoated book” and “offset” are used interchangeably to denote this category of paper.