Global advertising spending on printed media, which is crucial for the performance of daily newspapers and magazines, continues to decline, while spending on all other forms of media is on the rise. This is nothing new, and publishers must quickly find a business model that enables them to earn money. At a time when printed media is shrinking and publishers do not have a functioning business model for digital content, they risk irrevocably losing their share of advertising to new forms of media. A number of traditional daily newspaper and media publishers have recently implemented savings packages, which primarily involve coordinating their operations, putting a stop to parallel organisations for different channels and reducing the number of employees.
Printed media is, however, not the only consumer of printing paper. A large and growing part of global marketing budgets is assigned to operations other than traditional media. They are spent on marketing activities directly aimed at getting people to consume. A significant part of this activity is paper-related, such as direct mail and product catalogues, which fits in well with Holmen Paper’s niche products.
Industry structure and capacity
During the quarter, UPM’s acquisition of Myllykoski was approved by the European Commission. Through this acquisition, UPM has increased its annual production capacity by 2.8 million tonnes. At the end of August, however, UPM announced that it intends to dispose of capacity corresponding to 1.3 million tonnes in one way or another. One million tonnes will be shut down at the end of 2011, and UPM wishes to sell, or in another way pull out of, the mill at Stracel (annual capacity of 290 000 tonnes). It is almost exclusively capacity in the magazine paper segment (coated wood-containing paper and SC) that will be shut down.
The acquisition of Myllykoski has made UPM a clear leader in magazine paper in Europe. In terms of SC, UPM has 50 per cent of capacity after the closures, and 28 per cent in coated wood-containing paper. In addition, in terms of SC, there are only four other producers; Holmen Paper is one of them, with its 3 per cent share of capacity.
In terms of MF (newsprint, MF Magazine, book and telephone directory paper), the market is considerably more fragmented. There are no major capacity changes to report during the quarter either. Here, focus is rather on more and more producers opting to look at alternative products to manufacture using traditional newsprint machines. For example, SCA announced during the quarter that they are to invest SEK 350 million in Ortviken (in increased bleaching capacity, for example) to be able to produce improved products using PM5.
It can also be mentioned that, during the third quarter, several producers have opted to bring their newsprint machines to a standstill for long periods. For example, Norske Skog has implemented a stoppage of at least a couple of months for a paper machine at Skogn, due to flagging orders. Far from all producers choose to announce their stoppages officially, but paper machines have been brought to a standstill at more mills than Skogn.
Market outlook for wood-containing printing paper
Note that the comments in this section relate to the period January to August 2011, compared with the corresponding period in 2010.
Western European demand for MF Magazine products has increased so far this year. After eight months, it amounts to 900 000 tonnes, which is a 4 per cent increase. Exports to markets outside of Western Europe have dropped during the year, but as they only constitute around 20 per cent of total deliveries, they are still higher than in 2010.
For MF Journal, deliveries of high-brightness products have increased, while they are unchanged for low-brightness products. In general, it can be said that during the year the majority of producers have attempted to enter the MF Magazine market, especially among the high-brightness grades, which is most difficult due to the bleaching capacity required.
Capacity utilisation for MF Magazine is at 94 per cent so far this year, compared to 92 per cent for the same period in 2010. At the beginning of the year, very high utilisation rates were reported, but during recent months they have been at more modest levels. Moreover, these figures are to be considered together with the utilisation rate for newsprint as well as for book and telephone directory paper, because many of these machines are swing machines, meaning that they can produce several of the grades.
Deliveries of wood-containing book paper have decreased by 4 per cent during the year. Western European demand and exports have both declined compared with 2010.
Wood-containing book paper is primarily used in paperbacks, but also in hardback books. While we are aware that digital reading is on the rise, we have not seen any effect of this on wood-containing book paper in Europe so far. Rather, demand for this type of book paper has increased by 6 per cent annually on average during the last few years, a trend that will possibly be broken in 2011 considering the reduction so far this year. It should be observed, however, that there is a seasonal pattern in the deliveries of book paper; they are thus not distributed evenly throughout the year.
Telephone directory paper
Western European demand for telephone directory paper has decreased by 6 per cent so far this year, which is slightly less than expected. Exports, on the other hand, have increased, bringing total deliveries to an unchanged level compared with 2010.
Western European capacity utilisation is measured for book and telephone directory paper combined, and amounts to 79 per cent for January to August 2011, which can be compared with 74 per cent for the same period in 2010.
Total deliveries of SC paper from Western Europe have increased by 1 per cent so far this year compared to the previous year. However, exports account for the increase, as Western European demand has dropped by 5 per cent.
Out of the different SC grades, deliveries of the brightest grade (SC-A+) and that with a recovered paper content and the lowest brightness (SC-B), have increased. Deliveries of the standard product SC-A have decreased, on the other hand.
The utilisation rate for January to August 2011 is 84 per cent. While this is certainly better than the 80 per cent recorded for the same period in 2010, it is nevertheless very low. UPM’s announced capacity shutdowns will help to increase the utilisation rate next year, provided that demand is sustained. Among customers, there is unease on the market about what UPM’s dominance will involve, and customers of the paper industry are expressing that they do not want to be ‘in the clutches’ of a single giant.
Coated wood-containing paper
Western European demand for coated wood-containing paper has dropped slightly in 2011 compared with the same period in 2010. Exports have, however, increased by over 10 per cent, so total deliveries from Western European producers have increased slightly.
The high grammage coated products (MWC) constitute around 20 per cent of the segment, and their deliveries are unchanged compared to 2010. For the products with lower brightness, the situation is mixed. Deliveries of glossy LWC products have increased, while deliveries of matte products have decreased.
The utilisation rate for coated papers amounts to 86 per cent so far this year, compared to 84 per cent in 2010. Here too, UPM’s announced shutdowns will have an impact, and the utilisation rate is expected to increase after the turn of the year.
Demand for newsprint has decreased this year in all parts of the world except Eastern Europe. In Asia, total demand is on the decline, and it is worth noting that it is continuing to drop sharply in China (-23 per cent) after increasing for several consecutive years. Demand in India is increasing, but moderately (+3 per cent). Western European demand is 2 per cent lower than for the corresponding period in 2010.
Imports to Western Europe have decreased so far this year. They have increased slightly from Eastern Europe, but the factor that stands out is that imports from North America have declined 30 per cent, and just 40 000 tonnes have been imported this year.
Exports from Western Europe have also decreased in all regions, and North America stands out here too with reduced exports of 70 per cent. A total of just 9 000 tonnes of newsprint have been exported to the US so far in 2011.
Total newsprint deliveries from Western Europe have decreased slightly this year, and capacity utilisation amounts to 93 per cent for the first eight months of the year. The utilisation rate was 90 per cent for the same period in 2010.