Domestic Paper Stock Use Plummets First Quarter

Despite a surging market for the paper stock industry now, figures from the American Forest and Paper Association show the consumption of recovered fiber over the first quarter of the year dropped a steep 27.3 percent to 8.552 million tons. The decline was driven by a combination of significant downtime by mills throughout North America; a slowdown in production at other mills; and an overall slump in the U.S. economy.

While the figures for the quarter posted bleak numbers, the most difficult months were the first two. By March, the most recently reported month, consumption, although still down from the prior year, was much closer to a balance point. For the month consumption stands at 2.968 million tons, compared to last March’s figure of 3.048 million tons, a drop of around 3 percent between the two years.

The sharp drop in consumption came while the overall paper industry continued to slump. Reflecting the tough market, production of all paper grades dropped by 7.2 percent for the month, with newsprint production falling by 16.2 percent.

Paperboard production, while slightly better, also declined over the first four months of the year, with the Jan.-April figure of 15.328 million tons a 1.1 percent drop from the prior year.

Another positive sign for the paper stock industry has been the steady decline in the inventory of recovered fiber at domestic plants. At the end of March the inventory level stands at 933,400 tons, a sharp drop from the past several months.

The move by many paper and paperboard mills attempted to sharply curtail their inventory levels is partly the reason for the strong run in old corrugated containers.

Random checks with suppliers and purchasing agents throughout the country find inventory levels at many plants too low. Some mills are seeking out significant amounts of excess supply to build up inventory levels. However, several issues are arising. The first is the fact that with some strong buying from offshore mills many domestic mills are finding there is not any excess material available. This is helping to further drive prices. Secondly, some suppliers, remembering the tough market over the past 18 months when orders were cut, are looking to recoup much of these losses. At the same time, some suppliers say that during the trough, many mills cut off suppliers and dropped prices, creating a significant amount of anxiousness in the market.

Now, with some of these mills coming back and looking to buy more of the material, some of these very same suppliers are avoiding shipping these mills, or pushing prices even higher, creating greater upward pressure on the grades.