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Coated free-sheet

Jun 29, 2001 12:00 AM


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Coated free-sheet papers contain less than 10% mechanical (groundwood) pulp. They comprise as many as four of the five general categories of coated papers: Nos. 1 and 2, in which there is no groundwood, and No. 3, which may contain some groundwood. Nos. 4 and 5 are commonly groundwood grades but a small portion may be free-sheet (not containing groundwood pulp).

Nos. 1 and 2 generally range in basis weight from 60 to 100 lbs., and Nos. 3 and 4 grades, from 40 to 90 lbs. Most coated paper (about 75% to 85%) has a glossy surface; the rest is a combination of dull, matte and embossed. Brightness ranges from 88 for high-gloss No. 1 to 72 for less-expensive, lower brightness No. 4 with groundwood and chemical pulp and some clay filler. Bleached kraft hardwood pulp is used in making coated free-sheet, although some mills also use recovered paper. Coating solutions consist of pigments such as kaolin (clay), calcium carbonate, or titanium dioxide and binders or adhesives (such as soluble starches).

DEMAND WEAKENED IN 2000

The North American coated free-sheet market improved in 1999 and into early 2000, driven by higher market pulp prices and a strong European market. Producers in North America pushed up prices in early January. A $40 per ton increase in July appeared to succeed but then unraveled under the pressure of high inventories and imports from lower cost producers in Europe and Asia.

Demand in North America weakened in 2000 with North American shipments of coated free-sheet grades down 13% year-over-year in November 2000 to 359,000 mtons, the lowest monthly level in three years. This caused the shipment-to-capacity ratio to decline to 79% from 84% a year earlier, according to the Pulp and Paper Products Council. North American demand declined less than shipments as imports increased again. Through 11 months of 2000, imports were up 27% from the year before. At the end of November, North American mill stocks represented 46 days of supply.

Preliminary year-end data showed another big drop in shipments in December and an overall 6% decline for 2000 as demand remained weak and imports rolled in.

In Q4, prices for benchmark No. 3 60-lb. rolls appeared to slip below the $940 to $960-per-ton level from before the July 2000 price-hike attempt.

INDUSTRY CAPACITY

The impact of a January U.S. postal rate increase was not yet evident amidst the overall lethargy of the market. The U.S. dollar, in relation to Canada and Europe, continued to add to the market softness since it made American markets more attractive for imports.

The market in 2001 also faced the impacts from a cooling down of advertising, especially a fall-off in dot-com spending in print media.

U.S. coated free-sheet capacity is expected to rise at an average annual pace of 1.5%, which compares with a 4.2% rate in the previous 10-year period. Uncoated free-sheet capacity is projected to remain essentially unchanged over the next two years, and then rise by 0.9% in 2003.

Recent consolidation and corporate changes in the market include International Paper Co.'s (IP) acquisition of Champion International Corp., which boosted IP to the fourth-largest North American producer. IP announced in January it would sell the former Champion mill in Hamilton, OH, to Smart Papers LLC. Belgravia Investments became a leading producer through acquisitions of the former Simpson Paper mills in Texas and Oregon. Among the biggest changes was the acquisition of Wisconsin-based Consolidated Papers Inc. by Scandinavian giant Stora Enso.

Other producers like Plainwell Inc. and Gallaher Thorold ran into financial difficulties in 2000, with the Gallaher Thorold mill in Ontario and Plainwell's mill in Michigan both shutting down permanently. Georgia-Pacific Corp. announced in late 2000 it would close its 133,000 tpy Kalamazoo, MI, coated and uncoated free-sheet paper mill.

What's ahead?

A slowdown in advertising and new capacity overseas has affected the coated paper market this year. A U.S. postal rate increase effective in January pushed some catalog and magazine deadlines forward in 2000, leading to a small payback in 2001.

North American capacity growth is expected to be above average, with one key project being Bowater Inc.'s $182 million conversion of a 260,000 tpy newsprint machine at Catawba, SC, to coated groundwood in two years. U.S. coated groundwood capacity over the 2001 to 2003 period is expected to climb to 5.2 million tons, or 3.4% annually, according to American Forest & Paper Assn. (AF&PA). The growth also includes the impact of Bowater's investments in U.S. coater facilities that will use newsprint as a base stock. Coated free-sheet capacity is expected to rise at an average annual pace of 1.5%, which compares with a 4.2% rate in the previous 10-year period.

Source: Pulp & Paper annual forecast