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The European magazine paper market is in a very difficult situation due to extreme undersupply and very high input costs. On the one hand, the surge in production costs – especially gas and energy but also logistics, chemicals and raw materials – have forced paper mills to increase prices to all-time highs. On the other hand, the ongoing strikes at UPM’s publication paper and pulp mills in Finland are causing a shortage of paper in Europe, resulting in printers and publishers not being able to produce all their printed products. “The problem is that we don’t have paper. I don’t care about prices anymore, the point is that I haven’t received paper for one month,” one European buyer told Fastmarkets’ publication, PPI Europe.
In Q3 2021, supercalendered (SC) paper capacity decreased by some 400,000 tonnes per/yr as Stora Enso permanently idled PM 12 at its Kvarnsveden mill in Sweden. Capacity will further decrease in H1 2023 when Heinzel converts PM 11 at its Laakirchen mill in Austria from SC to recycled containerboard production.
Towards the end of last year, Smurfit Kappa Group started an environmental impact assessment (EIA) as well as a public consultation for its Parenco Renkum mill in the Netherlands in preparation to apply for a revision of the mill’s current environmental permits. According to the draft Memorandum on Scope and Level of Detail of the EIA, the firm decided to request a review of the mill’s current environmental permits because it is considering the option of producing only packaging paper at the mill and because it wants to make sustainability and social improvements at the site.
During 2021, coated mechanical reel (CMR) production capacity also dropped by some 790,000 tonnes per year due to the closure of SCA’s Ortviken mill in Q1 and the permanent shut of Stora Enso’s PM 5 at its Veitsiluoto mill in Finland.
In 2021, magazine paper production and demand were fairly in line with the 2020 figures, which were considerably lower compared to those for 2019. According to data from EURO-GRAPH, the European Association of Graphic Paper Producers, European SC shipments were stable at 2.5 million tonnes during the first 11 months of last year, while demand slipped by 1.2% year on year to 2.2 million tonnes. European deliveries of CMR improved by 2.4% on a year-on-year basis to 3.7 million tonnes during the period, while European demand increased by 2.5% to 2.9 million tonnes.
During the second half of 2021, the graphic paper market was confronted with strong inflation in all production costs, with prices for energy, transport and chemicals constantly increasing and pulp and paper for recycling prices stabilizing at high levels. Gas prices in particular put European paper mills under pressure and forced most paper producers to implement price increases and energy surcharges from September to November to offset rising energy costs. At the beginning of December, SC prices surged to up to £610 per tonne in the UK and up to €700 per tonne in continental Europe. On the coated side, LWC offset and rotogravure prices rose to £795 per tonne and £810 per tonne, respectively, while they reached €870 per tonne and €850 per tonne in continental Europe, although higher prices were also mentioned.
As the market balance strongly favored suppliers, negotiations for deliveries in 2022 were concluded well in advance compared to past years, at even higher prices. While some producers agreed to keep contract validities at six months, others preferred to limit them to the first quarter only. Some paper producers even decided to go with monthly paper prices due to the unpredictable situation with gas prices.
But these three- and six-month agreements quickly became outdated as gas prices surged again in December. Shortly before Christmas, one paper producer said he would apply a €75 per tonne price increase on all already agreed contracts for SC paper deliveries in Q1. At the beginning of the year, Holmen also told its customers it would further adjust sales prices for graphic paper products upwards for a period of time, due to escalating energy costs.
On the coated side, Norske Skog announced its intention to implement an energy surcharge of €125 per tonne for deliveries from January 10 through the end of Q1. Similarly, Kabel Premium Pulp & Paper said it would implement a €200 per tonne energy surcharge for deliveries in January, which has now been extended to February as well. Sappi, Burgo and Perlen also announced further price increases of 10-25%, up to 15% and €80 per tonne, respectively, from February 1.
SC prices reached a price level of €700-855 per tonne for deliveries in January in continental Europe, with slight differences between countries, while they increased to £620-790 per tonne for shipments in the UK. LWC rotogravure paper prices rose to £790-1,070 per tonne in the UK and to €790-1,110 per tonne in continental Europe, while LWC offset prices reached £700-1,050 per tonne in the UK and €790-1,110 per tonne in mainland Europe. In many cases, market contacts reported similar prices for rotogravure and offset qualities.
“We’re only missing a locust invasion and then we’ll have seen everything,” a European buyer joked when commenting on the news that workers at UPM publication paper and pulp mills in Finland were starting an industrial action. On January 1, workers at the firm began a five-week strike to protest the company’s intention to negotiate different agreements for its separate business units instead of a company-wide one. The strike, called by the Finnish paper-workers’ union Paperiliitto, was then extended for a further two weeks until February 19, due to the fact that an agreement had not been reached.
Last week, Paperiliitto announced a further extension of the strikes, which are now scheduled to end on March 12, unless an agreement is reached before then. The mills involved produce SC paper, CMR, coated woodfree paper, uncoated woodfree paper, specialty paper and market pulp. According to Fastmarkets RISI’s Asset Database, UPM produces some 350,000 tonnes per year of SC paper and almost one million tonnes per year of LWC paper in Finland.
The consequences of the strikes are starting to significantly impact the market, especially now that customers are running out of stocks. According to some market commentators, LWC rotogravure paper and mediumweight coated (MWC) paper deliveries are particularly affected. “The strikes [at UPM’s Finnish mills] are a big issue. We notice it in the market – a lot of our customers, both printers and publishers, don’t have enough paper and therefore cannot print magazines,” one market source told PPI Europe.
“We replaced MWC [paper] with LWC [paper]. We reduced print runs for the high-brightness magazines. It’s not ideal but we are doing what we can and hopefully [the situation] will not stay like this for the whole year. But it will be difficult to get paper [from UPM’s Finnish mills] until the end of April or the beginning of May,” another one said. “If the strikes continue for two more weeks, it will be a problem for the whole industry. We are working on contingency plans,” a European buyer told PPI Europe in January.
Most producers confirmed they are receiving many enquiries for additional volumes but they can hardly help as their machines are already running full. “Clients would take any paper they can get. A customer that was buying MWC would be happy to find newsprint now, just to have something to print on,” a market source said. According to another source, Portuguese customers in particular are being impacted by the strikes because they are very exposed to deliveries by ship from Finland.
The European federation for print and digital communication Intergraf is also worried about the consequences of the strikes in Finland and, more generally, about the current situation in the graphic paper market. “It is estimated that in some countries, close to 50% of this paper for heatset printing comes from one supplier. The stocks of printing companies will not last until the strike has been settled, and printers will be forced to announce to their customers their inability to fulfil orders. This means that publishers will be forced to abandon print editions due to a lack of paper,” the association said in a statement. It added: “The shortage affects all types of print products but is particularly detrimental to time-sensitive printed matter such as newspapers, magazines, books and advertising.” Intergraf also said that, according to its members, 40% of the paper needed from mid-February onwards will not be available, and that the inability to print will cause large financial losses for printing companies and end-customers.
The paper shortage comes on top of the extremely high paper prices, which are also posing a threat to the printing industry. “We are losing loyal print buyers like catalog users due to production costs and a shortage of paper. There is a big risk that those print buyers will not come back. This jeopardizes our industry, and we will suffer irretrievable damage,” a large-format offset printer told Intergraf.
The first consequences of the current paper crisis are starting to be felt on the printing market, where a number of companies have either decided to close production sites or have been forced to file for insolvency.
In November, Dutch magazine publisher Pijper Media decided to stop its printing activities by closing its printing site and outsourcing production, while German printer Prinovis announced its intention to close its rotogravure printing site in Dresden, Germany, on December 31, 2022, where it produces magazines and catalogs. The company had already permanently idled another rotogravure printing plant in Nuremberg in April last year.
Meanwhile, Italian editorial and commercial printer Stige decided to voluntarily liquidate the company and sell all its assets, while Austria’s Queiser and Germany’s abcdruck filed for insolvency in self-administration. In January, Italian printer Elcograf, part of the Pozzoni group, announced a 37% price increase on rotogravure printing products as of February 1, and said it was mulling a temporary suspension of printing activities at its Treviglio site if the increase did not go through. The firm said the hike was much needed in order to offset skyrocketing energy costs and paper, ink and transport prices.
Also in January, German commercial printer Peschke Druckerei said it will stop production at its printing facility in Munich by the end of Q1. According to market contacts, Spanish commercial and editorial printer Litofinter has stopped production and might soon end its activities, while another Spanish commercial printer is said to be up for sale.
The number of variables currently affecting the publication paper market makes it difficult for paper producers and buyers to predict what will happen this year. On the supply side, provided that the strikes at UPM’s mills in Finland end soon, market participants expect the situation to normalize sometime towards the end of Q2. “The market might rebalance once [the strikes] are over but it will take several months because there will be huge delays in deliveries,” a source commented. Many market players believe that paper demand will take a major hit from the current price environment as printers and publishers will be forced to reduce paginations and print runs, or even to convert some magazines to digital, because they cannot afford the current prices. “We had to increase the cover price of some magazines, let’s see how readers react,” one European publisher told PPI Europe.
On the other hand, paper producers said the tight market will continue and that their order books are full for April, and sometimes all the way to June. “We’ve got customers putting reservations in for September, without even knowing the price evolution,” one market source commented. “The French election campaign alone will use 5,000-10,000 tonnes of CMR or woodfree paper between February and April,” another one added.
As for sales prices, most market sources agree that the problems linked to gas and energy supplies will continue throughout the year, thus keeping the pressure on paper producers. Not everyone, however, shared that opinion. “Prices will go down, that’s for sure, because we’re at the peak of the curve. The question is when it will happen?” one market participant said.
Pulp producers have also started another round of price increase attempts, and wood costs are also on the rise. And then there is the transport situation, where the availability of trucks and drivers remains very low. “Sometimes you can produce paper, but you are not sure you can deliver it because there are no trucks,” one market source said. It is a perfect storm with no end in sight.