Spend Matters welcomes this guest post from Karolina Tomczyk, senior economist at pricing and purchasing, IHS Markit.
The buying environment for paper will return to balance in the second half of 2016.
Sellers have likely already implemented most price increases across several grades, taking advantage of recent changes in supply flows. These price increases were only a partial implementation of their intended hikes, as buyers did not perceive the market as tight enough and resisted significant increases. Moreover, considering the ongoing decline in demand for graphic papers, it is unlikely that these price increases will hold — IHS Markit expects downward price pressure to return in the second half of 2016.
Newsprint prices found their bottom in the fourth quarter of 2015 at $505/short ton, having declined by $100/short ton (or by 16%) over 12 months. This prompted two major mill closures, removing some 450,000 tons of combined capacity. Once the closures came into full effect, producers started implementing staggered price increases, ranging $5–$20/short ton each. The initial announcement called for a total of $60/short-ton increases over several months, but IHS Markit does not expect that buyers will accept the full increase. Current price forecast shows prices climbing to $535/short ton in the second quarter of 2016, then stabilizing during the summer/autumn season. Price softness will return in late 2016 and remain throughout most of 2017, before sellers start pushing for higher prices again.
In uncoated freesheet, producers also are taking advantage of reduced supply, but in this case it comes from the implementation of the antidumping ruling by the Department of Commerce, rather than mill closures. Sellers' announcements of price increases have seen various results. There have been no significant price increases in cut-size paper as of yet, with $5/short ton being possibly the best result in some cases. Previously, prices slid from $975/short ton in late 2015, down to $960/short ton in the first quarter of 2016 on weak demand, and they do not show any signs of dynamic recovery. Going forward, prices are expected to see stability throughout 2016, hovering around $960/short ton mark, with a moderate upside risk in some grades. However, supply flows are now changing from sellers impacted by antidumping duties to other overseas suppliers, eager to increase their share in the North American market. In addition, domestic producers also have room to produce additional volumes, as operating rates in the uncoated freesheet paper have been on the low side. This will ensure supply is sufficient to enable stable pricing. The following year will see only a modest price escalation to $985–$990/short ton.
Coated papers prices continue to decline ever since a brief spike in late 2014/early 2015. A combination of cheaper imports and ongoing softness in demand brought prices down by $30/short ton throughout 2015 and into 2016, and this weakness is expected to persist during this year. Prices are currently at $865/short ton and IHS Markit expects them to soften to $860/short ton before the end of the year. Supply reductions in super-calendered (SC) paper and upcoming presidential elections in the United States could possibly contribute to higher consumption of coated paper for leaflets and flyers, but it is unlikely to drive prices up. In 2017, prices will also stay below $870/short ton.