Those of you (us) who believed that 2009 was severe and challenging for European newsprint production were wrong. Things are really going wrong in 2010. Harsh competition over market shares has pushed the paper prices down by Euro 120/tonne (24%) on an annual level. Today newsprint prices are at all time low levels. In Germany the average price of 45 gsm newsprint is Euro 427.50/tonne and in France Euro 435/tonne. And prices in the UK are even worse.
Additionally, prices of the main raw material, recycled fibers, are skyrocketing. Sorted graphic paper (SGP) prices have increased by 118% in Germany and 89% in France since the fourth quarter of 2009 and have reached their highest levels since the record-breaking spring in 2002.
What is behind of these dramatic changes? For European newsprint prices, the primary reason is overcapacity. Due to rapidly shrinking demand and new capacity by Palm in the UK, the completed capacity closures have not been enough to keep operating rates at a level where paper machines could operate in the sweet spot. As long as there is overcapacity, the low-cost paper machines are likely to have higher operating rates and high-cost machines will need to drop their sales prices. Regarding recycled fibers, the primary reason is an increasing demand for recovered paper and a shrinking supply of virgin fibers. Globally, all new newsprint machines and most new packaging machines are using recycled fiber as the raw material. Strong capacity growth in Asia, especially in China, is eating all of the recycled fiber available. But the new mills in Europe also need the fiber. When demand and production of paper and board made of virgin fibers shrinks in the western world, the balance between supply and demand is too tight. So due to weak capacity management, sales prices are freefalling and due to a structural shift from West to East and from paper to competing media, recycled fiber prices are skyrocketing.
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