Paper360 - November/December 2017 - 45

than 2 percent of uncoated freesheet supply,
compared with 6 percent of capacity for the
first uncoated mechanical closure.
However, even if we assume a 200,000ton machine size, this still leaves the 11th
uncoated freesheet machine closure as less
than 3 percent of supply. This means that
part of the reason individual uncoated
freesheet capacity reductions look much less
significant compared to other graphic paper
grades is simply the sheer size of the uncoated
freesheet supply, which accounts for nearly
40 percent of total North American graphic
paper capacity.
Since it is more attractive to close less significant machines before operating rates deteriorate enough to negatively impact pricing
and profitability, the smaller importance of
each individual uncoated freesheet machine
may make it easier for uncoated freesheet
producers to balance supply with demand
than the rest of the graphic paper industry.
If each individual machine closure removes
a large chunk of capacity, then producers will
be hesitant to make capacity reductions until
operating rates become dismal rather than
merely mediocre.
An example of this can be seen in the experience of the western North American newsprint market. Two machine closures in the
second half of 2015 brought capacity down
by more than 25 percent, and prices climbed
in 2016. Since then, however, capacity has
remained unchanged even as demand has
continued to deteriorate, resulting in weakening operating rates and falling prices in the
first half of 2017. A supply adjustment will
finally occur in the fourth quarter of 2017,
when Norpac will close a machine that, all by
itself, accounts for 18 percent of the region's
current capacity. In contrast, an averagesized uncoated freesheet machine closure
would only remove around 1.5 percent of
current uncoated freesheet capacity. This
difference may partly explain why uncoated
freesheet margins have outperformed those
of other graphic paper grades.
CONVERSION SPECULATION
If some of the recent speculation about the
conversion of large-scale uncoated freesheet
machines to packaging is realized, the average size of uncoated freesheet machines
could decrease, further improving the grade's
prospects for smoothly managed demand
declines. In the absence of conversions, however, the tendency of smaller, older machines

to be higher cost and thus more vulnerable to closure might cause each additional
graphic paper closure's share of capacity to
climb dramatically.
Thanks to the increasing impact of individual closures on market balance, graphic
paper operating rates may become less stable
than in the past, leading to increased volatility in prices and profitability. Of course,
producers will do their best to mitigate this
volatility by partially swinging machines
between grades, proactively seeking conversion opportunities, and increasing their focus
on export markets as an outlet for excess

supply in between closures. Although the
strong US dollar has made trade a headwind
for most North American producers over the
past few years, a significant depreciation of
the dollar could make exporting a more viable
avenue for producers hoping to smooth out
the impact of the capacity reductions needed
to balance declining demand.
Derek Mahlburg is senior economist, North
American graphic paper, RISI. He is co-author
of the Paper Trader, the North American
Graphic Paper 5-Year Forecast, and the North
American Graphic Paper 15-Year Forecast.

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Table of Contents for the Digital Edition of Paper360 - November/December 2017

Setpoint
Over the Wire
Rebuilds and Conversions
Proud to be a Papermaker
The New Cascades
Operational Data Helps Mills Meet Challenges
Papermaking Best Practices with Vacuum-Dewatering Systems: Part 2
TAPPI Library is an Industry Resource
Managing the Decline of Graphic Paper Demand
TAPPI Journal Summaries
2017 PPI Awards Finalists
TAPPI News
ASPI News
Index of Advertisers
Paper360 - November/December 2017 - Intro
Paper360 - November/December 2017 - cover1
Paper360 - November/December 2017 - cover2
Paper360 - November/December 2017 - 3
Paper360 - November/December 2017 - 4
Paper360 - November/December 2017 - 5
Paper360 - November/December 2017 - Setpoint
Paper360 - November/December 2017 - 7
Paper360 - November/December 2017 - Over the Wire
Paper360 - November/December 2017 - 9
Paper360 - November/December 2017 - 10
Paper360 - November/December 2017 - 11
Paper360 - November/December 2017 - Rebuilds and Conversions
Paper360 - November/December 2017 - 13
Paper360 - November/December 2017 - 14
Paper360 - November/December 2017 - 15
Paper360 - November/December 2017 - 16
Paper360 - November/December 2017 - 17
Paper360 - November/December 2017 - 18
Paper360 - November/December 2017 - 19
Paper360 - November/December 2017 - 20
Paper360 - November/December 2017 - 21
Paper360 - November/December 2017 - 22
Paper360 - November/December 2017 - 23
Paper360 - November/December 2017 - Proud to be a Papermaker
Paper360 - November/December 2017 - 25
Paper360 - November/December 2017 - 26
Paper360 - November/December 2017 - 27
Paper360 - November/December 2017 - 28
Paper360 - November/December 2017 - 29
Paper360 - November/December 2017 - The New Cascades
Paper360 - November/December 2017 - 31
Paper360 - November/December 2017 - 32
Paper360 - November/December 2017 - 33
Paper360 - November/December 2017 - Operational Data Helps Mills Meet Challenges
Paper360 - November/December 2017 - 35
Paper360 - November/December 2017 - 36
Paper360 - November/December 2017 - 37
Paper360 - November/December 2017 - Papermaking Best Practices with Vacuum-Dewatering Systems: Part 2
Paper360 - November/December 2017 - 39
Paper360 - November/December 2017 - Managing the Decline of Graphic Paper Demand
Paper360 - November/December 2017 - 41
Paper360 - November/December 2017 - TAPPI Journal Summaries
Paper360 - November/December 2017 - 43
Paper360 - November/December 2017 - 44
Paper360 - November/December 2017 - 45
Paper360 - November/December 2017 - 2017 PPI Awards Finalists
Paper360 - November/December 2017 - 47
Paper360 - November/December 2017 - TAPPI News
Paper360 - November/December 2017 - ASPI News
Paper360 - November/December 2017 - Index of Advertisers
Paper360 - November/December 2017 - cover3
Paper360 - November/December 2017 - cover4
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