Printing and writing papers: half full or half empty glass?

How you see the printing and writing paper market depends on how and where you look at it. If you view coated paper grades, you see healthy growth and renewed demand. If you look at uncoated grades, you see mostly disappointing demand and uncertain markets. If you examine printing and writing paper in North America, you see demand growth well under the expansion in gross domestic product (GDP). If you check out demand in China, you see explosive growth.

NORTH AMERICAN RECOVERY

There is no question that the North American printing and writing paper market improved in 2004--the question is how much and if it can be sustained. According to a September 2004 report by Standard & Poor's Rating Services, the overall outlook for North American forest products companies improved modestly due to increased demand for nearly all printing and writing papers since the end of the first quarter of 2004. Volumes and pricing were up from "generally depressed" levels as the industry slowly escaped weak markets that began in 2001.

Standard and Poor's said rising exports helped the North American industry, while imports--particularly for coated paper--had dropped due to the weak U.S dollar. This has led to tight supply conditions in some grades. The strike at UPM's Miramichi, New Brunswick, Canada mill, which began in December 2004, has helped keep the North American coated mechanical paper market particularly tight.

Overall, North American printing and writing paper shipments rose 4.7% in 2004 to 28.1 million metric tons, according to figures from the Pulp & Paper Products Council, a Canada-based organization. Coated mechanical paper shipments were up 7.8% to 5.4 million metric tons, while coated freesheet shipments were up 7.3% to 4.4 million tons. Part of the recovery was driven by increased demand and part by the slide in the dollar.

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The news was not nearly so good for uncoated freesheet. North American uncoated freesheet shipments rose just 1.2% in 2004, to 12.7 million metric tons. Uncoated mechanical paper shipments, a much smaller part of the market, were up a healthy 8.4% for 2004, to 5.6 million metric tons, according to the Council.

In the U.S. alone, uncoated freesheet shipments in 2004 were 12.4 million tons, up just 1% from 2003. While that was the first actual increase since 1999, it still was only tepid growth compared to the overall U.S. economy, which was up 4.4%. U.S. shipments of uncoated freesheet in 2004 were still far below the peak year of 1999, when U.S. companies shipped 14 million tons of uncoated freesheet. Why is this happening? Many observers place the blame on burgeoning electronic communications, which are replacing many functions once held almost exclusively by uncoated paper grades, as well as efforts by major corporations to cut costs by reining in paper usage. In fact, the only real growth in uncoated paper usage appears to be in the home office segment, which continues to expand.

FAST FINISH IN FINLAND

Europe does not appear to be suffering from the same malaise as the U.S. market. For example, despite the rapid increase in the value of the Euro, Finland reported excellent results for its printing and writing papers sector in 2004. Production of printing and writing papers (including newsprint) exceeded 10 million metric tons and rose by more then 8% in 2004. The fastest growth was for fine paper (woodfree printing and writing papers), which were up more than 16% compared with 2003. Production of mechanical paper grades increased more slowly.

CHINESE DRAGON KEEPS ROARING

Meanwhile, in China, paper and board production was expected to rise 14% in 2004, to 49 million metric tons. This incredibly rapid pace of growth was expected to continue at least to 2008, when Beijing is scheduled to host the summer Olympics. In the coated woodfree sector, imports were expected to drop to 20% in 2004 (down from 50% in 2000), while production and consumption are expected to rise 10% a year for most of the decade.

Indeed, much of the rapid capacity expansion in China is focused on premium coated paper grades. While China once imported large quantities of coated paper, Chinese companies are now producing coated paper that is equal in quality or better than paper produced in Western countries. China's increasingly sophisticated economy is absorbing vast quantities of coated paper as its economy becomes more advertising- and marketing-driven.

It is a familiar story. Western markets are peaking or have peaked in usage of certain printing and writing paper grades, while developing markets like China experience incredibly rapid demand growth. It all depends on what you are looking at, and where you are looking from.

ALAN ROOKS, EDITORIAL DIRECTOR