In a Rut

The North American paper industry continues to struggle with declining demand for its finished products. While information continues to point to troubles in the North American newsprint industry, some of the challenges affecting that sector may be spreading to other paper grades and other regions of the world.

Reflecting the ongoing problems in newsprint markets, Norske Skog has announced plans to shutter one of its newsprint mills in Norway because of declining demand. In the United States, Kimberly-Clark announced plans to close its paper mill in Everett, Wash., by the end of the first quarter of 2012. In the Midwest, Wausau Paper announced plans to sell its printing and writing paper mill in Brokaw, Wis., by the first quarter of 2012. While these may be the latest closings announced in 2011, others likely will be announced in 2012. Several paper stock dealers say markets are flat at best with a trend toward the downside during the first two months of 2012.

In early November, some paper stock dealers had expressed optimism that offshore demand for old corrugated containers (OCC) from China could increase because a number of board mills in China were short of supply and needed to buy more aggressively to replenish inventories. However, toward the end of December, OCC demand seems to be faltering a bit, though it hasn't totally collapsed. One West Coast source says material is still moving at a decent rate.

According to several exporters, OCC, which was expected to stabilize in December and January, may dip a little further in January as Chinese mills continue to postpone making significant purchases. Several paper stock dealers also say Chinese New Year, which takes place in late January in 2012, could further affect the market for OCC.
 

Mixed paper grades also are following a downward trend, though this sector may be stabilizing. Shipments to China have been moderating, and a turnaround is probably not expected until the end of the first quarter of 2012.

The domestic market is being characterized as fairly listless by sources contacted for this report. One Midwestern paper recycler says he doesn't expect an improvement in paper markets until spring at the earliest. "Markets are retreating right now. I don't see a turnaround until March," he says.

The old newspapers (ONP) market, he adds, is depressed, with most newsprint mills in fiscal trouble. Even the Mexican market, which has been an outlet for some ONP, dropped off sharply. Mexico remains a difficult market for high grades. Several sources say buyers for Mexican mills continue to purchase smaller volumes of ledger grades, contributing to the softening of those grades throughout the Southwest.

The Midwestern paper stock dealer says Catalyst Paper, headquartered in Richmond, British Columbia, continues to be a major overhang on the market, with negative expectations growing over the company's ability to run at its present rate. Catalyst is reviewing alternatives to address its capital structure, and debt reduction has been identified as a priority. With four mills in British Columbia and Arizona, Catalyst has a combined annual production capacity of 1.9 million metric tons.

(Additional information on secondary paper markets, including breaking news and consuming industry reports, is available at www.RecyclingToday.com.)