1Q Pulp and Paper Market Trends
- European and North American pulp prices decline – During the first quarter of 2023, one important market trend we witnessed was the continued decline of North American and European pulp prices. This comes consequently to the global drop in demand for paper. From September 2022 to early 2023, pulp prices fell by 5-15%, according to Wood Resources International, a ResourceWise company.
- Printing and writing paper sector continues downward trajectory – Total US printing and writing paper shipments decreased 15% in February 2023 compared to the previous year. This comes with little to no surprise as global printing and writing capacity has been on a steady decline over the last several years. It hit an all-time low in 1Q2022, as illustrated in the image below. Although the declines from 2Q2022 to 1Q2023 have been minimal, they are still creating that downward slope we expect to continue seeing.
Printing and Writing Paper Capacity 1Q2018-1Q2023
Source: FisherSolveConsequently, many companies are now investing in conversion projects in reaction to the decreased demand for printing and writing paper and switching to grades experiencing relatively consistent demand. For example, ND Paper just recently finished converting one of its machines at its Biron, Wisconsin mill from producing lightweight, coated publication papers to producing recycled brown packaging grades. The line recently started up.
- Increased investments in the Pacific Northwest – On March 20, 2023, Clayco, a full-service, turnkey real estate, architecture, engineering, design-build and construction firm, broke ground in Longview, Washington. This was a major step in their collaboration with WestRock on its new 410,000-square-foot corrugated box plant that will begin production in the fall of 2023.
News such as this is important because it’s a beacon of light for smaller communities during this time of economic calamity. Longview, a small town situated between Seattle and Portland, has proven to be a small yet mighty location for pulp and paper investments.
Within the last five years, nearly a billion dollars has been invested in various projects in Longview. This trend has been the same for other smaller towns in the Pacific Northwest. There are several drivers behind the increased investments and developments in rural areas of the PNW, such as:
- Access to fiber
- Access to infrastructure
- Installed base of mills
- Log exports
Mergers, Acquisitions and Divestments
- CellMark acquires Lenvale Group with plans to invest in expansion. CellMark is planning to improve the business of Lenvale Group by providing access to international suppliers and markets, as well as implement some expansion plans. CellMark is also considering investment in a new rewinder and saw. Lenvale consists of Lenvale Paper, Blaybourne Converters and furniture sack maker KES Converters.
- Smurfit Kappa Group exists Russia. The Group announced its intention to exit the Russian market on 1 April 2023. Following the approval of the Russian authorities, the Group’s operations in Russia have now been sold to local management, said the company in a statement. The operations include a bag-in-box facility and two corrugated plants in St Petersburg, and a corrugated plant in Moscow.
- Nippon Paper Industries withdraws from graphic paper business in Australia. This is due to a lack of timber supply at its Maryvale mill, Victoria. The mill uses eucalyptus wood as raw material for bleached pulp, the main component of graphic paper, from VicForests (VF), a Victorian state-owned forestry business. In November 2022, the Supreme Court of Victoria, Australia issued orders against VF which impacted VF’s ability to continue its timber harvesting operations, making it impossible to procure eucalyptus wood from VF.
- Paper Excellence follows through with plans to diversify its business with its acquisition of Resolute. Paper Excellence received the Canada's Competition Bureau consent for takeover of Resolute Forest Products and is now exuding confidence in further improving its business in Canada. The bureau approved the proposed acquisition of Resolute, subject to conditions. One of those conditions was that Paper Excellence's wholly owned Domtar division sell its pulp mill in Dryden and divest Resolute's pulp and paper mill in Thunder Bay. "Acquiring Resolute will allow us to diversify our products and clients, thanks to Resolute's expertise in lumber and tissue," Paper Excellence said in a statement. "This is a perfect complement to our current activities," the company added.
Overview and Outlook
To state the obvious: market conditions have been less than ideal recently. And unfortunately, we saw these worsening market conditions accelerate in the latter part of the first quarter of 2023.
As discussed earlier, the printing and packaging segment took a downward turn as capacity and shipments experienced an overall decrease. And while a decline in printing and packaging might be something we already expect at this point, we saw other, somewhat unsuspecting, segments weaken as well.
Construction challenges are also still occurring, with a lower number of issued building permits and new housing starts. In turn, we expect this to have a temporary impact on demand for the wood products sector during the rest of the year.
With cost pressures and market uncertainties expected to be significantly more challenging in 2023 than 2022, this market situation will continue to weaken consumer confidence. This could ultimately result in lower consumption.
The only way to combat the industry’s volatility is with reliable, historical data, transaction-based raw material price forecasts, and the industry experience to connect the relevant dots and provide meaningful insights – all things Fisher International offers.
How to Position Your Company for Success
Fisher International can provide you with a deeper analysis into these industry developments and how they might impact your business and influence your decision-making. Our consulting services help give you answers to important questions by explaining market movements in verifiable, fact-based and common-sense terms that industry professionals find useful.
To alleviate some of the pressures that have impacted your business over the last several months or years, you need not only a collection of enhanced business tools, but a team of experts with a vast range of experience and expertise. This will enable you to make better decisions with a high degree of confidence.
For more information on how Fisher’s Leveraged Consulting services can help you with your next project, contact us today.