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Newsprint – Strong or Weak?

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Since last Fall, some interesting fundamental have occurred in the newsprint market. Here’s a rough timeline of key events:

Spurred by the shut-down of the Howe Sound mill (which created a supply/demand balance on the West Coast), all producers in that region announced increases that would effectively bump prices by $20/mt on 30# newsprint by January 1st. Howe Sound cited the west coast drought as the reason for the permanent closure. The increase went through, with little resistance from buyers, thus creating a price balance between the East and West Coast. That is, until…

In a bit of a surprise move, Resolute announced (on the last day of November), a newsprint price increase for the East Coast in the amount of $20/mt for January 1st, and $20/mt for February 1st. Other East Coast producers followed. It’s worth noting that combined; Resolute, Kruger and White Birch represent about three-fourths of the N.A. newsprint market. Once again playing catch-up, all West Coast producers announced a $20/mt increase for February 1st. Most if not all of the increases up to this point were implemented in full, with the West Coast again roughly $20/mt behind). Looking to achieve price parity (again), the West Coast producers have announced a further $20/mt to be implemented on May 1st.

So where does this put producers and buyers? Propped up by a weak Canadian Dollar, producers north of the border were able to drop prices through 2015 (to the tune of roughly $100/mt). However, the CAD has moved up 7 cents since the first of this year, and now stands at about .80 vs. the USD. The CAD is closely related to the price of crude oil, which topped $42 per barrel this week. Were this to continue, it would put Canadian producers in a poor financial situation.

On the demand front, N.A. newsprint demand is down 4.4% through March (not unexpected). Further, for N.A newsprint producers, the export market is not a rosy one. The reduction of Russian output (due to the pitiful Ruble), did cause a small blip in exports as we entered the new year, but they appear to have been short-lived. With no growth on the horizon, it would seem that in order to preserve pricing, a reduction in N.A capacity will be necessary. It’s anyone’s guess which mill may step up and declare downtime and/or temporary or permanent shut-down of machines. Since the late 90’s newsprint companies have been reducing capacity (mostly shutting entire mills; however some converted machines to higher value grades). All of the low-hanging fruit, in terms of hi-cost equipment, has been dismissed. The next capacity cuts will be tough decisions to arrive at. Hence, they may not occur in the time-line that existing mills would like.

Today, Resolute announced a price increase for 30# newsprint (East Coast) that would go into effect on June 1 ($15/mt); and July 1 ($15/mt).