Mixed Reaction To Shift in North American Newsprint Data
E&P Staff May 1, 2006
By: Debra Garcia
While North American newsprint usage was down again in March, output declined even more sharply, giving at least a temporary impression that producers are gaining in their efforts to keep the market tight.
According to statistics released today by the Pulp and Paper Products Council (PPPC), North American newsprint production was down year-over-year in March by 9.1%, while total U.S. consumption fell 1.9% for the same period.
This brought year-to-date figures for North American newsprint production to 6.5% below first-quarter 2005, while total U.S. consumption for the same period dropped 3.7%.
"We are encouraged to see a decline in production that significantly outpaces a decline in consumption," noted Claudia Shank, paper and forest products analyst with JP Morgan.
However, Mark Wilde, industry analyst with Duetsche Bank, remained bearish on the market, indicating that the moderating in the rate of consumption decline might "simply be 'statistical noise.' No real change in our view on [the] newsprint sector," he said.
Consumption by U.S. daily newspapers, which is seen as a truer indication of usage, dropped 5.0% in March compared to a year earlier, and totaled 1.75 million tonnes through the first three months, down 6.6% from first-quarter 2005.
North American newsprint output through the first quarter totaled 3.0 million tonnes, a drop of 6.5% from a year ago. However, the operating rate in March fell to 94% compared to 97% a year earlier.
Canada takes the brunt. Canadian mills fared worse than their U.S. counterparts, operating in March at 93% while U.S. mills ran at 96%. Canadian newsprint production for the month was down 11.4% from last March, while newsprint output in the U.S. fell by much less (off 5.2%) during the same period.
A work stoppage at Stora Enso's Port Hawkesbury, N.S., publications paper mill, which began in late January and continues indefinitely due to unresolved labor negotiations, has helped tighten the market by idling a 190,000 tonnes/year newsprint machine, noted Verle Sutton in the April issue of The Reel Time Report.
With production curtailments, North American mill inventories plummeted by 55,000 tonnes in March, ending the month with 313,000 tonnes in stock, 22,000 tonnes lower than a year earlier.
Most of the inventory loss occurred in Canada, where mills reduced stocks by 49,000 tonnes during March. In the U.S., inventories dropped just 6,000 tonnes during the month, according to the PPPC.
Consumer inventories were considerably lower than a year earlier, with total U.S. users stocks off 105,000 tonnes at the end of March compared to a year earlier, even though they increased by 5,000 tonnes during the month. Stocks held at U.S. dailies declined by 18,000 tonnes during March and reached a level by month's end that was 87,000 tonnes below a year ago.
Inventories look good. Since total inventories (mills plus consumers) normally increase by an average 26,000 tonnes in March, the net decline of 50,000 ton was seen as a "positive variance of 76,000 tonnes," Wilde noted. "Tight inventories should help provide the newsprint producers with a measure of pricing power as they continue in their battle to boost newsprint realizations," he said.
The February U.S. newsprint price increase of $40/tonne is slowly being implemented. Industry observers estimated that between $15/tonne and $20/tonne of the hike had been realized by April, bringing the price of 30-lb newsprint in the U.S. to $670/tonne. Tiered pricing, however, is reportedly placing most of the hike on smaller publishers while large consumers are paying little, if any, of the increase.
"Today's data pushes demand-supply fundamentals and, importantly, pricing power more in favor of producers," said Shank, projecting another $5/tonne push in the February hike, to a total realization of $25/tonne of that increase.
Exports not helping. While North American demand for newsprint remains disappointing, offshore shipments offered little relief. In March, total overseas deliveries of North American newsprint were down 14.8% from a year earlier and brought the year-to-date total to 519,000 tonnes, off 18.4% from first-quarter 2005, according to PPPC data.
The decline was sharpest in shipments to Western Europe, down year-over-year by 56.3% in March and off 49.5% through the first quarter. Volumes to Asia also fell significantly in March compared to a year earlier, dropping by 13.4% to Japan and off 12.7% to non-Japan Asia. Through the first three months, volumes to Japan were down 31.4% and non-Japan Asia was off 22.6%.
The only export market still growing is Latin America, where newsprint shipments from North America were up year-over-year by 26.9% in March and by 17.5% year-to-date.
Total shipments from North American newsprint mills were down in both Canada and the U.S. in March, falling collectively by 7.2% from a year ago and bringing the year-to-date total to 3.0 million tonnes, down 6.4% from first-quarter 2005. March shipments from Canada fell 7.9% year-over-year, while U.S. deliveries dropped 6.0%. Through the first quarter vs a year ago, volumes declined by 7.6% in Canada and 4.4% in the U.S.
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