Pulp & Paper News

RISI VIEWPOINT: Facing reality in the coated mechanical paper market—what producers and publishers in the USA need to accept



CHARLOTTESVILLE, VA , June 12, 2014 (Viewpoint) - 

The day of reckoning has come for the coated mechanical market and there are a few harsh realities that both producers and publishers need to accept. Producers need to understand that demand is not coming back. In fact, it is going to continue to collapse in the coming years. Yes, there are a lot more new titles of printed magazines being born this year, but, no, the magazine industry is not going to use more paper. Printed catalogs and magazines are not going to go away by any stretch of the imagination, but average page counts will decline, circulation will decline and publishers will look for cheaper grades of paper to offset declining ad revenue for printed products. More titles will be born and more titles will die, but the net result will be less paper usage in the coming years.

North American demand for coated mechanical paper has already been cut from 6.6 million tons at the peak of the market in 2007 to just 3.7 million tons in 2013. We are forecasting another 6-7% drop in 2014, and the market will lose 775,000 tons over the next five years, falling to less than 3.0 million tons by 2018 (Figure 1). North American coated mechanical operating rates are already in the mid-80s so far this year, so what are producers going to do? Increased exports are not the answer. Export demand is low and falling in some markets, while profitability can be even less than domestic sales due to higher delivery, customer service and selling costs. The logical conclusion would be to retire more North American paper machines, even though the industry has already idled the oldest and costliest of the bunch, and to continue to consolidate to reduce costs and gain synergies. The decision on closures has been put off by uncertainty over the merger of the two largest players in the industry, and has resulted in oversupply and falling profitability. The current record low level of profitability and continuing declines in demand indicate that mill shuts are imminent.

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