FIRST QUARTER OUTLOOK ON PAPER AND TRENDS

Starting off with a bang

A modest increase for uncoated products came as a slight surprise with Domtar, Sylvamo, and Sustana all announcing 5-8% increases the first week of December, effective early January.? Sylvamo was first out of the gate on December 2nd, with the others following up December 6th.?? While uncoated capacity continues to dovetail downward year over year, this increase also makes sense as a sort of protective price floor. Coated web and freesheet increases are likely on the horizon for much of the same reason. There are indicators for this to happen soon as the majority of interest rate cuts are now in the rearview working their way out into the broader market. Coupled with anticipated upcoming economic policy changes that will be based on deregulation, a merger and acquisition friendly market, and a reduction in the corporate tax rate makes a modest uptick in demand a possibility come fall.

The tariff question

The deadline for announcements on the first round of tariffs is right around the corner (Feb 1). With tariffs being used more as a policy and negotiation tool rather than a strict market protection lever, it remains to be seen what duties will actually be determined or passed.? Uncoated manufacturers may present some vulnerability; both Domtar and Sustana (the artist formerly known as Rolland) have major presence in Canada, and Sylvamo is international.? With over 40% of the coated market still being buoyed up by imports, European and Chinese mills carry some measure of risk. As of today, no specific tariffs or duties have been discussed regarding paper from Korea that I am aware of. Any sort of tariff pressure no matter the country of origin could challenge paper supply chains in the short term and have an additional inflationary effect on price whether the paper has coating on it or not.? An uptick in demand alongside this could upset the cart although we should not see the kind of outages and stockouts we saw in 2022. Longer lead times are much more likely.?

Board review

Fresh off the heels of yesterday's State of the Paper Industry brought to us by Billerud and GAA, Billerud announced that capital dollars being invested into the mills in Escanaba and Quinnesec will be keyed on modernization and improving heavyweight paper manufacturing (at long last). Along with Sappi completing their transition of another Somerset paper machine to SBS this quarter, we see the market focus of the mills to continue to orient on board and packaging grades. While graphics papers still maintain market presence, demand still forecasts to decline, which means more capacity out of the market as machines either shut down outright or convert.

Our strategy one month into 2025: Renewing our commitment to our domestic suppliers along with utilizing program-based strategies should allow us to mitigate short-term disruption.? Much remains to be uncovered and uncertainty looks like it will be hanging around well into the spring and summer.

Take care out there and see you back here for our Second Quarter Outlook.