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Uncoated free-sheet

Jun 29, 2001 12:00 AM


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Chemical pulps (sulfate, sulfite, soda, cotton linters or vegetable fiber) are used to make uncoated free-sheet (also called wood-free) papers, with occasional additions of up to 10% mechanical fiber or bleached chemi-thermomechanical pulps (BCTMP) and recycled fibers. BCTMP lowers the cost of manufacturing while providing a better grade of paper than stone groundwood or other mechanical pulp. Many of the major producers have converted some or all of their machines to alkaline-based paper, and most new installations are alkaline.

Uncoated free-sheet papers are used for office and business printing (copiers, computer printers, etc.), business forms and envelopes, publishing (mostly text and trade books), commercial printing, and writing (stationery). There has been an upheaval in the segment as cut-size demand is expected to grow two to three times faster than overall uncoated free-sheet demand, thanks to the rise of digital on-demand printing and sales of inkjet and laser printers.

Total North American shipments of uncoated free-sheet papers totaled 13.9 million mtons in 2000, 2.9% lower than 1999 shipments of 14.3 million mtons.

CAPACITY: CLOSURES AND CONVERSIONS

Many of the major producers, including International Paper Co. (IP), Georgia-Pacific Corp., Willamette Industries Inc., Crown Vantage Inc., and Appleton Papers Inc., have announced and/or carried through on closures and conversions in the uncoated free-sheet market that total about 1.04 million tons over the next year. Total U.S. uncoated free-sheet capacity is expected to decline by about 5% in 2001, a loss of 795,000 mtons from 2000, finally ending up at about 14.8 million mtons in 2002. Most of the reductions were announced as permanent.

Of the biggest removals, IP announced last October that it would close three mills and reduce operations at a fourth paper mill — removing about 820,000 tons of its U.S. uncoated papers capacity — as part of a restructuring effort to reduce an oversupply of paper and cut operating costs. Willamette announced the removal of about 85,000 tons, and Appleton announced the closure and conversion of 89,000 tons.

In total, virtually no new uncoated free-sheet capacity comes on in 2001 and 2002. From 2001 to 2003, uncoated free-sheet capacity grows just 0.3% a year — well below the 2% growth in the previous 10-year period.

CURRENT MARKET CONDITIONS

The uncoated free-sheet market was fairly snug at the end of 2000, following a weak May to September period. Capacity rationalizations can be thanked for the market turnaround in Q4. In January 2001, key suppliers announced a $60-per-ton increase for the uncoated free-sheet market, the second increase in the past 12 months. As of Q1 2001, cut-size (20- lb. bond) was transacting at about $890 per ton, about 3% higher than the same period in 2000. Offset printing rolls (50 lb.) were at $750 to $790 per ton, about 4% higher than the 2000 period.

The most recently announced price increase appeared to be shaky. Several industry analysts said that in order for it to be successful, uncoated free-sheet producers must follow through with planned capacity closures. In addition, rising pulp prices sparked skepticism about the increase. Analysts did believe, however, that perhaps half of the $60 per ton increase might be implemented, largely due to a steady market demand.

OUTLOOK

Operating rates are expected to rise over the next two years. The 2000 U.S. operating rate was 89.6%. Operating rates are expected to be at about 96% this year. In addition, U.S. uncoated free-sheet shipments are expected to increase 1.5% this year over 2000 and total almost 14 million tons. Finally, prices are expected to increase 3.5% in 2001 to average $908 per ton for 20-lb. reprographic bond, up from an average of $877 per ton in 2000.

The big picture

Paper machine closures by International Paper and other producers are likely to be offset by new capacity from Willamette Industries Inc.'s planned machine in Kingsport, TN, keeping capacity growth at a minimum.

Long-term pricing is expected to stay above trend levels, although a strong recovery from current levels appears unlikely. U.S. uncoated free-sheet capacity is projected to remain essentially unchanged over the next two years, and then rise by 0.9% in 2003, with almost all the growth in that year attributed to the ramping up of Willamette's new machine, reported American Forest & Paper Assn. (AF&PA). Over the 2001 to 2003 period, uncoated free-sheet capacity is scheduled to climb at an average annual rate of 0.3%. This compares with an average annual rate of 2% in the previous 10-year period.

Source: Pulp & Paper annual forecast