While paperboard markets are improving modestly, markets for newsprint and printing and writing papers continue to struggle.
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.
Commerce Department to investigate dumping claims
A handful of North American paper manufacturers have filed a suit claiming that offshore paper producers have been shipping their uncoated paper into the United States at below-market prices.
The North American paper companies—Domtar, Packaging Corp. of America, Finch Paper LLC and P.H. Glatfelter Co.—have filed a complaint with the U.S. International Trade Commission (USITC) that alleges that companies in Australia, Brazil, China, Indonesia and Portugal are shipping uncoated paper into the U.S. at below-market prices.
In its preliminary ruling, made in early March, the USITC determined there was reasonable indication that the four North American paper companies have been materially injured or threatened with material injury by reason of imports of certain uncoated paper from the five countries that are allegedly selling their paper in the United States at less-than-fair-market value. Further, the USITC says China and Indonesia have had their shipments subsidized by their respective governments.
According to a news release from the United Steelworkers, the antidumping and countervailing duty petitions indicate that imports of the subject products from the five cited countries increased 44 percent from 2011 to 2013 and by 40 percent from the first nine months of 2013 to the same time in 2014. From January through September 2014, imports from the subject countries equaled 86 percent of imports from all countries and 21 percent of U.S. consumption, the United Steelworkers says.
The imports increased despite declining U.S. demand.
Shipments of certain uncoated papers from domestic manufacturers declined by 8 percent from 2011 to 2013 and by 9 percent from the first nine monts of 2013 to the same time frame in 2014.
Now that the USITC has determined there is reasonable indication that imports are materially injuring or threatening material injury to the domestic industry, investigations will continue. As a result of the commission’s affirmative determinations, the U.S. Department of Commerce will investigate. The Commerce Department will make its preliminary countervailing duty determination by April 16, 2015, and its antidumping duty determination on or about June 30, 2015.
How significant is this dumping issue?
With the apparent domestic consumption of uncoated paper in 2013 at approximately $4.5 billion, the USITC estimates that imports make up around 15.5 percent of the total market. Further, the value of those shipments stands at about $500 million in 2013.
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.
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.
Exports no longer promise unlimited opportunity
While the upside for containerboard markets, especially offshore, is strong, risks lie ahead for paper recyclers.
Johnny Gold, president of Gold Group Recycling Consultants LLC, a Swampscott, Massachusetts-based firm providing expertise in all facets of the paper recycling industry, cautions that the days when the offshore market presented unlimited opportunity for paper packers are fast coming to an end.
“We compete every day versus the producers of virgin material,” Gold says. “Our finished product has to be just as good in quality and spec.”
He adds, “We are now seeing competing countries build up their infrastructure in terms of collection systems. They will not totally rely on imports of recovered paper but instead will build their internal collection system.”
Gold, who has nearly 40 years of experience in the paper and paper recycling industry, says while some skeptics may scoff at overseas mills replacing recovered fiber sourced from the U.S. with material collected domestically, “by building the infrastructure in terms of collections, these foreign mills will have a far better grip on the quality of their raw material.”
He adds, “Looking back to when I started, we had major customers throughout Europe in countries such as Spain, Italy and France. Today, very little, if any, [recovered fiber] is shipped to these countries as they have built their own recovery programs.
“We used to ship to the Philippines, South Korea, Japan and Taiwan,” Gold says of U.S. suppliers. “Today, very little goes to these countries.”
Even if establishing domestic collection programs takes time, Gold says Asian mills will buy from Europe and Japan if U.S. suppliers cannot meet their quality specifications.
“My concerns lie deep in the fact that the quality of the residential grades coming out of the United States have greatly deteriorated over the last few years,” he says.
Dan Sandoval is senior editor of Recycling Today and can be reached via email at email@example.com.