Skip to main content

Busy November for Paper & Board

22nd November 2024

Written by Iwan Le Moine

Well, what a month it’s been for the paper industry outlook, with the usual flurry of autumnal activity being supplemented by some rather big news.

Pulp and Paper Capacity News

Following rumours over the past few weeks, we finally heard confirmation that Shandong Chenming Paper Holdings had idled around 4-5m tonnes pa of pulp and paper/paperboard capacity (tbc), due to overdue debts of some $251m. The mill blamed a combination of new capacity (creating a growing gap between supply and demand in the country in recent years), a tightening of financial instruments/loans, as well as price falls for coated board grades.

As such, the company has indefinitely shut down much of the capacity at four out of its five mills, including all of its coated board machines and three of its fine paper machines.

The four mills with idled capacity are:

  1. Shouguang city in Shandong:– the 500,000t coated board machine, one of its two CWF machines as well as one of its four UWF machines. This mill also continues to run two tissue machines.
  2. Zhanjiang mill in Guangdong:- 1.2m coated board machine nearly a 1mt BHKP line; one of the three UWF machines (total capacity: 1mt).
  3. Nanchang mill in Jiangxi:- 350,000t of Uncoated Paper, a coated board and pulp line.
  4. Jilin mill:- 300,000t of Uncoated Paper and pulp line.
  5. Huanggang city, Hubei:- 600,000t pulp line is unaffected.

Paper Price Uncertainty

Now looking West, with the US elections earlier this month, and not as close as polls were telling us, causing a big story in itself (if not too many paper column inches, as it once did); and back here in the UK, the Bank of England dropping interest rates by 25 points, although the hopes for another drop soon were dampened by higher than expected inflation in the latest figures.

Following the EU’s decision to delay implementation of EUDR, the focus has certainly shifted away from this new potential constraint – and cost – for all buyers and sellers of paper around Europe.

Suddenly, with the news being flooded by all the potential changes to both economic and geopolitical routes around the world following the US election results, paper buyers and sellers are having to second guess many factors for 2025, from the impact of exchange rates affecting global trade flows, to how some current wars might finally come to an end, but without additional disruption to shipping routes and energy prices.

Where such big news would normally have been accompanied by a surge in newspaper and magazine pagination in years gone by, the media frenzy has shifted the attention away, in many cases, from the day-to-day issues and factors directly affecting the pulp and paper trade, just as sellers and buyers of market pulp met for the annual gathering at London’s Pulp Week.

In the meantime, and if we try to bring the focus back to the industry’s more usual bread and butter issues, here’s the latest European statistics for 2024 demand (vs 2023) which shows the following:

W. European Graphic Paper Shipments:

Oct-243mma
Publication Papers-5%80%
Woodfree Papers-2%73%
Graphic Papers-4%77%

And that’s just Europe!

Overcapacity in the Paper Sector?

But the patterns are very clear, here at least, with high quality/high-priced grades, e.g. Coated Papers/WFs and even SC magazine grades, having been substituted for the lower end ones, i.e. Newsprint and in some cases, Hibrite grades.

This is not good news for the coated paper sector, because where it takes a short time – amid rising prices – for a buyer (especially retailers and advertisers) to substitute down from a more expensive coated grade, the move up takes much longer to happen, if it ever happens at all (especially in a high-priced environment, with tight marketing budgets). So when you see the overcapacity across the paper sector (see table above), it really is serious cause for concern.

Some inroads into the overcapacity are being made, however; although Heinzel Papier had already earmarked its PM11 SC paper machine at its Laakirchen mill (in Austria) for closure some time ago, the deadline for conversion to half a million tonnes of Recycled Containerboard was pushed back several times, from Q4 2023 to end-24. Today, it has been announced that the machine will close down by the end of this month (Nov-2024).

I presume that this sudden announcement comes both because of the ongoing over-supply and of course because mills and buyers are negotiating new Q1 2025 prices right now, and the over-capacity is certainly not making things easy for mills.

The machine is stated at 330,000t of SC production capacity, making primarily the higher qualities of SC-A/SC-A+ for Offset printing, as well as smaller volumes of SC-B; the mill stopped producing SC for Rotogravure printing in 2019. Ten years ago, the mill produced over half a million tonnes of SC-A magazine papers on two machines.

If we take 330,000t as a recent maximum practical capacity, this machine accounts for nearly 15% of total European SC capacity, but more importantly, only 5% of total Magazine Paper capacity (SC+LWC), wherein lies the current issue with overcapacity for mills in Europe, with a combined operating rate for this sector at only around 66% for 2024 (ytd). If we include other mechanical paper sectors, i.e. plus newsprint & hibrites, the rate does improve to 74%, so this latest machine closure will not, on current data, lift operating rates above the 80% threshold.

Once Heinzel Papier converts its Laakirchen SC paper machine, there will only be six SC magazine paper suppliers left in Europe, namely:

  • Holmen
  • Maxau
  • Norske Skog
  • Parenco
  • Stora Enso
  • UPM

These six will have 1.9m tonnes of SC production capacity, split unevenly between SC-A & SC-B as well as between Offset & Gravure production, or just 35% of the European SC capacity in 2011, at its peak of 5.5m tonnes. Additionally, with Holmen’s swing capacity capabilities and Stora Enso’s clear strategy to exit graphic papers placing a question mark over its Belgian plant, the future is indeed very uncertain for many nervous magazine paper publishers across Europe.

So for us, the situation has not changed and we expect more announcements in the coming days, especially new announcements in the publication and especially coated paper sector, over and above, what has already been announced.

World Demand in Pulp and Paper

Looking at the wider picture, world demand is slowing right down too and in the latest available data, is hovering around zero percent growth, global operating rates have been slipping steadily since they peaked in March, and both pulp and paper prices are on the slide, which is consistent with growing stocks, weak real, underlying demand and lead times falling; regarding the latter point, the benchmark European Woodfree index, these have now fallen to the crucial four-week mark, on average, with some reporting much lower than this still, indicating that prices are likely to fall in the months ahead.

Meanwhile, and whilst European and North Americans scramble to close capacity (converting to packaging is not the quick and simple solution it once was), some Chinese mills are actually still, right now adding massive new mills and machines, almost exclusively in the UWF sector (excluding packaging).

This is very bad news for a sector under pressure and now with a slowing Chinese economy, potentially adding millions of tonnes of uncoated white papers. And that’s before the new US president instigates his promised new import tariffs regime! Estimates vary, but we could see anything from 3-5m tonnes of UWF starting up in China in 2025-26 (excluding the newly idled capacity at Chenming), in addition to all the new capacity we witnessed in 2024 (see EMGE World Graphic Papers, Oct-24 for details).

Certainly plenty to think about here, in terms of global trade flows, especially given Europe still exports sizeable quantities of graphic papers to North America & Asia, even in a struggling US paper environment, but in the context of an aggressive Chinese building programme:

European Exports of Magazine/Coated/Fine Papers, 2024 YTD:

To N. AmericaTo Asia
Mechanical Papers230,000t290,000t
Woodfree Papers320,000t280,000t
Total Graphic550,000t570,000t

It’s easy to see how, with a slowing Chinese economy and thus lower paper demand, two new Chinese machines could effectively wipe out most of Europe’s exports, even if the grades aren’t exactly like for like, as we know many end-uses can be printed on different paper grades, including UWF. In the short term, we expect some relief for western UWF mills following the news of Shandong Chenming’s financial plight, especially as several other new UWF machines started up earlier this year and more are due to come on stream in the next two years in China.

On a more positive note for both mills and buyers alike, some costs have come down, or at least stopped rising so steeply, with inflation more or less under control, the main one obviously being the price of market pulp, although pulp experts warn that with Chinese pulp prices being at a very low point right now, the speculative market which is now a major driver of global pulp markets, is likely to turn up again next year, either in Q1 or Q2.

For European buyers, pulp is now coming down, especially so for hardwoods, reopening a gap with the slower falling softwoods, the latter more resistant to falls thanks in part to the high price of Nordic wood as well as North American pulp price dynamics. Wood too has peaked but remains at a very high level (see chart in previous update).

A lot of these issues and more are discussed in finer detail in EMGE’s latest Global Monthly Monitor, which, in addition to regional and global paper demand rates, also tracks operating rates and new machine investments globally (and closures); some of the paper drivers highlighted in this month’s issue include:

  • Brazil Print/Publishing
  • Europe Advertising
  • France/Polynesia Magazines & new print title
  • Germany Printing
  • India Print Advertising
  • International Books
  • Italy Books & Magazine Circulation; Direct Mail & Magazine Advertising
  • New Zealand Magazines
  • Spain Magazine Advertising
  • UK Advertising; UK Wood, Paper Products & Printing
  • USA Printing, Industry Jobs, Printed Consumer Books, Bookstore sales, Magazines & Advertising

One issue is certain, paper demand, whether locally or globally, is falling once again, and is likely to keep falling, even if there are occasional brighter spots, e.g. Book Papers, and in this respect, many mills will be finding the current operating rates very uncomfortable, even if bearable for a few months recently.

That said, we expect more machine closure announcements from the industry in the coming days and weeks, especially so in Europe unfortunately, which continues to learn to deal with  lower structural demand, relatively high costs, more challenging export markets – which itself includes the triumvirate of falling overseas demand, higher logistics and more Chinese capacity (Chenming notwithstanding) –  as well as other geopolitical factors, including exchange rate fluctuations (a rising USD currently), inflation, modest economic growth/prospects (see German GDP chart above) and ongoing logistical disruptions. These latter elements are not going away, and if anything, growing ever more pervasive and uncertain. This article was first posted on LinkedIn here.

Free Sample

News