Grade Profile

Coated groundwood: Prices up due to strong demand that could last through year

Grade and usage. Almost half of coated groundwood papers are used for commercial printing (catalogs, direct mail, newspaper supplements, advertising inserts), followed by books and magazines (40% and 38% of U.S. shipments, respectively). Small amounts of coated groundwood are used in converted products. Coated groundwood papers contain 10% or more mechanical (groundwood or wood-containing) softwood pulp and are almost universally coated on both sides. They are typically lower in brightness, price, and weight than coated free-sheet. Primary classifications for coated groundwood papers are Nos. 4 and 5. A No. 4 has both mechanical and chemical pulp, and a No. 5 mostly mechanical pulp.

No. 5 papers make up about 40% of the total U.S. coated paper produced. Coated groundwood papers are commonly made in the 32-lb to 50-lb range (25 in. x 38 in.), although basis weights can run as low as 24 lb and as high as 70 lb. The most popular category is LWC or lightweight coated (32-lb to 40-lb), which accounts for more than 80% of coated groundwood.

About 48% of total 1997 U.S. coated paper shipments were groundwood grades. Shipments totaled 4.5 million tons, up 18.5% from 1996. Shipments to magazine publishers and book publishers were up 2.7% and 14.7%, respectively, while shipments to the commercial printing sector declined 6%. Canadian shipments of coated papers rose to 1.3 million tons in 1997; coated groundwood shipments totaled 921,000 tons.

Capacity. The largest coated groundwood producer, Consolidated Papers Inc., increased its size significantly with the acquisition of the former Repap Enterprises mill in Kimberly, Wis. Capacity expansions in the U.S. have been and will continue to be minimal through 2000. Growth as estimated by the AF&PA will occur at an average annual rate of just 0.2% in the 1998 through 2000 period, an increase of just 13,000 tons, compared to the 635,000 tons that was added from 1988 to 1997. Canadian coated groundwood capacity is expected to rise 5.4% during the 1997-2000 period.

The projects at coated groundwood mills owned by Champion International Corp., Bowater Inc., Consolidated Papers Inc., and UPM-Kymmene Corp. (Blandin Paper Co.) in 1997 and 1998 are not expected to substantially increase U.S. capacity. In Canada, several projects have been under discussion for sometime by Kruger Inc. (at the Bromptonville, Que., mill), and two companies—Grande Alberta Paper and Daishowa-Marubeni International—are seeking government approvals to build LWC greenfield mills in Alberta. Internationally, additional coated groundwood capacity is coming online, most recently the startup of UPM-Kymmene’s new 400,000 mtpy paper machine at the Rauma, Finland, mill.

Markets/outlook. The coated groundwood market rebounded in 1997 after slipping in 1996. Year-end U.S. mill inventories stood at 106,500 tons, down 56% from 1997. Rising levels of order books in the fourth quarter lead producers to implement a Jan. 1 $60/ton price hike.

Most analysts forecast retail sales to continue active through most of the year, boding well for current tight market conditions. It is unlikely any further price increases would be implemented until after June due to several factors. As availability becomes limited and prices higher, buyers usually turn to alternate sources of supply, such as less expensive supercalendered (SC) papers. In addition, the price of coated free-sheet has not risen appreciably this year, making some grades of this higher-quality paper only slightly more expensive than coated groundwood. Also, pulp prices were under pressure during the first quarter; pulp is an important input into coated groundwood.

BY Joyce Routson

Executive News Editor