While paperboard and printing and writing products face headwinds, tissue grades should hold up.
Despite the recent softening in the Chinese economy, China will likely be the key driver for recovered fiber markets from the United States, according to Hannah Zhao, a recovered paper economist with Boston-headquartered RISI. During a session titled “The Economy in the Forest Products Industry,” Zhao and Tobias Crabtree, an analyst with Standard & Poor's (S&P), New York, discussed the financial outlook for the U.S. paper industry as well as the role that China will play in driving the U.S. recovered fiber market.
In his presentation, Crabtree noted that slow economic growth in North America has resulted in a U.S. GDP (gross domestic product) of approximately 2.2 percent for 2012. That number, he added, will slow to 1.8 percent in 2013. The result of the slower growth is more cautious consumer spending outlook.
Meanwhile, the economy in Europe is going through a mild recession in 2012 with no growth expected in 2013, he said.
The other key sector for the paper industry is China. While its economy is still growing, Crabtree noted that China's economic growth will likely slow to 7.5 percent.
Crabtree added that consolidation in the containerboard sector could improve the industry, ultimately boosting prices.
On the downside, he said S&P has an “unfavorable” outlook for the coated free sheet and newsprint sectors. For coated paper, he noted that two of the largest producers, New Page and Verso Paper, are both under significant financial pressure, with New Page in bankruptcy protection and Verso “highly leveraged.”
Crabtree pointed to low to mid single-digit volume declines in the coated grades for next year. Coated paper price stability hinges on the ability of producers to cut production capacity to correspond with demand declines, he said.
The tissue sector continues to show more upside potential. Crabtree noted that there has been significant capacity expansion in the U.S., which is being driven by population growth.
Zhao said China’s internal collection program continued to grow, though the country is still far away from becoming self-sufficient regarding its own recovered fiber needs. She added that at the present China imports around 27 million tons of recovered fiber, with roughly half of that material coming from the United States and the remainder coming from Europe and Japan.
The 2012 Paper Recycling Conference was Oct. 14-16 at the Marriott Magnificent Mile in Chicago.