Magazine paper prices rise dramatically on tight market and surging input costs

European magazine paper prices saw an unprecedented rise between September and November due to a very tight market and steep increases in input costs. With the energy crisis not expected to ease any time soon, further price hikes are expected in January 2022, thus putting some small- and mid-size printers at risk of closure and possibly forcing more European publishers to switch more publications to digital formats.

All input costs increase
Following a price decrease at the beginning of 2021, when paper sales prices reached historically low levels, European paper mills started to come under pressure as paper for recycling (PfR) prices began to increase steeply towards the end of February. At the same time, pulp prices had already begun to rise towards the end of 2020 and continued to do so up to July this year, when they began to flatten out. In this situation, European paper mills started to increase prices for both uncoated and coated mechanical paper for all new business and uncontracted volumes as of Q2. Meanwhile, several paper mills producing recycled grades reportedly had to reduce production in some cases due to a lack of raw material.

In June, paper mills managed to impose price increases for deliveries in H2 or, especially on the lightweight coated (LWC) paper side, in Q3. Prices for supercalendered (SC) paper increased by Euro 40-65 per tonne on average in continental Europe during the period and by £40-50 per tonne in the UK, while LWC prices rose by Euro 50-60 per tonne on the continent for both the offset and rotogravure qualities. In the UK, LWC rotogravure prices rose by £50-60 per tonne, while LWC offset prices edged up by £40-60 per tonne.

Nevertheless, the cost situation for paper mills worsened during July, with prices for PfR, transport, energy, chemicals and CO2 allowances constantly increasing, forcing European producers to announce raw material surcharges and further price increases. In a letter to customers, Germany’s Kabel Premium Pulp & Paper reportedly announced a Euro 60 per tonne raw material surcharge for reels and a Euro 30 per tonne surcharge for sheets for all LWC and mediumweight coated paper shipments as of August 1, aimed at offsetting growing chemical pulp, energy, chemical, wood and transport costs. Later in July, Burgo said it would raise mechanical paper prices by Euro 50 per tonne for deliveries as of September 15, and Sappi announced its intention to hike prices for coated mechanical reels (CMR) by at least 10% effective immediately for new business and no later than October 1 depending on ongoing agreements. At the end of August, Perlen Papier also expressed its intention to raise newsprint and LWC paper prices by Euro 60 per tonne for shipments from September 1, for both non-contractual and contractual business.

As the economy started to improve following the implementation of the COVID-19 vaccination programs and the subsequent easing of restrictions by European governments, magazine paper demand started to improve, boosted in particular by the retail segment, while also being supported by requests from outside Europe. According to data from EURO-GRAPH, the European Association of Graphic Paper Producers, European SC deliveries increased by 3.1% year on year to 1.8 million tonnes during the first eight months of the year, with European demand improving by 1.5% to 1.6 million tonnes. During the same period, total European shipments improved by 3.7% year on year to 2.7 million tonnes, while European CMR demand increased by 2.2% to 2.0 million tonnes.

In this situation, some market contacts started citing price increases of at least Euro 50 per tonne in Italy for CMR deliveries in September. In Spain, SC prices rose by Euro 30 per tonne on the higher end of the range in September, while LWC rotogravure and offset prices grew by Euro 50 per tonne and Euro 55 per tonne, respectively, also on the higher end of the range. The lower end of the range remained fairly stable during the month as some paper producers reportedly decided not to amend existing contracts.

At the beginning of September, the cost situation for paper mills deteriorated further, with energy prices climbing dramatically. Electricity prices in Europe rose above Euro 100/MWh for the first time ever, corresponding to a year-on-year rise of approximately 150%, while gas futures surpassed Euro 62.3/MWh, nearly doubling from June levels. Meanwhile, EU CO2 permit prices also topped Euro 60 per tonne in September, up from Euro 34 per tonne at the beginning of the year.

These sharp increases forced European paper mills to take action in order to offset rising input costs. Heinzel announced a Euro 110 per tonne increase on SC deliveries as of September 1 for all non-contracted quantities and as of October 1 for all contracted volumes, while Burgo said it would implement upcharges of up to Euro 150 per tonne to cover energy costs. Kabel also announced a Euro 150 per tonne energy supplement which applied to all deliveries as of October 15, on top of a Euro 60 per tonne price increase from October 1. According to market sources, Stora Enso seeking a Euro 50 per tonne increase on all recycled-based papers produced in continental Europe, while Norske Skog announced a Euro 100 per tonne surcharge on all deliveries as of October 15. The latter then quickly announced another Euro 100 per tonne surcharge on all newsprint and CMR deliveries from its Golbey and Bruck mills to be applied for deliveries as of November 1. Finwasally, Heinzel announced a further Euro 150 per tonne energy surcharge for SC deliveries from November 1, while Perlen is said to have announced a further Euro 50 per tonne increase from November 1 on all newsprint and LWC shipments.

Following the implementation of these energy surcharges and increases, prices for SC deliveries rose to as much as £610 per tonne in the UK and Euro 650 per tonne in continental Europe. On the LWC side, prices have skyrocketed and levels of up to Euro 820 per tonne and Euro 880 per tonne have been mentioned for rotogravure and offset qualities, respectively. But to some customers, it is not clear how things will develop once – or if – the energy crisis comes to an end. “What will happen when energy prices go down? Will mills decrease paper prices also?” one market source wondered.

On the production side, SC capacity fell by some 400,000 tonnes per year when Stora Enso closed its Kvarnsveden mill in Sweden at the end of September, while CMR capacity dropped by some 255,000 tonnes pear year due to the closure of Stora Enso’s Veitsiluoto mill, also in September.

Both the uncoated and coated mechanical paper markets are reportedly fully booked until at least the end of the year and, according to market contacts, lead times in some cases reach February-March, particularly on the coated side.

Meanwhile, paper buyers uniformly lament the lack of paper. All market contacts agree on the fact that there will not be enough volumes for everyone between now and the end of the year, a development that is putting at risk part of the Christmas catalog season as well as book production for the holiday period.

Pivotal 2022?
Negotiations for shipments from January onward have already started in some cases, although, considering the lack of visibility due to the cost evolution, paper producers do not yet have a clear idea of what price levels for next year will be. “We are booking orders for next year but with open prices, and we are only discussing three-month validities. I don’t know what the price will be for next year, but I would say that there will be a big price increase. We are watching each other, and everyone is waiting to see how the market leader will act,” one market participant told PPI Europe. “We’ve made very early requests to the [paper] mills concerning what we want for 2022 but we are still waiting to see what they say,” another one added.

According to various market sources, the market leader started informing customers in September regarding 2022 prices, expressing its intention to increase minimum levels to Euro 590 per tonne or £510 per tonne for newsprint, to Euro 640 per tonne or £580 per tonne for SC paper and to Euro 720 per tonne or £630 per tonne for LWC. Market contacts said that the producer sent a second letter weeks later stating that, considering the cost evolution, a further Euro 50 per tonne increase on top of the above-mentioned prices would be applied in January. According to some market contacts, those prices might be even higher for deliveries to peripherical countries due to higher transport costs.

All market sources agree on the fact that the current and upcoming price increases will further decrease paper demand and that the industry is going through an historical moment.

“It’s a transition period, and I’m not sure that there will not be other price increases before the end of this year. If so, we would arrive at prices announced for 2022 in advance, and that means there would not be any negotiations for 2022 prices. This would mean that prices would start to be defined month by month, and that’s a crazy change,” one market participant said. “[These price increases are] going to cause damage, it’s going be difficult for publishers to continue at these price levels. We’re certainly in a different era. We’re in a situation where mills are not prepared to return to a situation where they are lossmaking when it comes to paper production,” another one commented. “There seems to be a shift in thinking. When paper mills see that prices will return to levels at which they are losing money again, they will close or convert assets,” he added.

The first signal of such developments came from Heinzel. In late October, the company announced it would exit the publication paper market in 2023 by converting PM 11 at its Laakirchen mill in Austria to the production of recycled containerboard, thus reducing SC capacity by approximately 330,000 tonnes per year.

As for 2022, according to market participants, the magazine paper market will remain tight at least during the first six months of the year, but it is difficult to estimate how much demand will drop because of the price increases. “Many clients are thinking about what to do with their catalogs and leaflets, and magazine publishers are also [wondering what to do]. Demand will fall drastically next year and there will be overcapacity again,” one market participant said. “One big question is the financial situation of printers, because they cannot pass all the additional costs on to their customers and this will lead to financial problems. Small- and medium-size printers in particular are getting squeezed between big paper suppliers and big end-retailers. So now they are asking for double the price,” another source said. “For me, 2022 will be the most important year in the paper and printing industry because we are facing huge changes,” he added. “These price increases will put an end to printers and to small- and medium-size magazine publishers,” a third contact said.

On this note, at the end of October, printing and publishing associations in Germany, Austria and France sounded the alarm over the sudden implementation of high energy surcharges from paper mills, criticized the mills’ behavior and invited their members to seek legal advice. The associations lamented the fact that the surcharges were implemented retroactively on paper that had already been ordered and that the letters to customers mentioned the same timetable for implementation, similar surcharges and sometimes even used similar wording. “Due to the rising energy costs, paper prices were raised by Euro 100-150 per tonne. What is striking [to us] is the time of entry into force, the similar wording [of the mills’ letters] and the amount of the price increase,” the Austrian printing media association Verband Druck Medien said in an open letter to producers. “We approached the [French] competition authority according to the reporting procedure as we have had to do in several sensitive cases,” France’s printing and communication association UNIIC said in an open letter. The European federation for print and digital communication Intergraf also called for an “open and transparent dialogue” between paper mills and buyers in order to de-escalate tensions due to sudden and significant energy surcharges. “This situation is putting at risk the whole value chain and will lead to the loss of end-markets for both the printing and the paper sectors,” the association said in a statement.