Selective Cuttings

The graphic paper demand collapse (Graphic paper #3)

August 19, 2014

In the previous post, we discussed the technology changes that led web-based electronic communications technologies to outcompete graphic paper. Given the high degree of dependence of newspapers on connecting buyers and sellers (through advertising) and entertainment/information services, one would expect this impact to be felt in the newsprint sector first. Indeed, that is what we see: between 2000 and 2012 North American newsprint demand fell by over 65%. Over the same period, uncoated freesheet (UFS) demand fell by 39%—not as bad as newsprint, but then, copy paper does not compete with electronic media in both the market coordination and information/entertainment sectors: it primarily competes with electronic media in the information sector—so while it has rapidly declined, it has not declined as rapidly. Unsurprisingly, due to the high exposure of all coated papers and uncoated groundwood (UGW) to the magazine and catalogue segments, they have declined by almost the same amount since 2000: 32% and 33%, respectively. Interestingly, however, demand for these grades actually increased until 2007, but have since fallen off drastically: the quality of graphics in magazines was much higher than those available in portable electronic devices (such as smart phones) until that time. Since 2007 even this advantage of traditional print has been lost.

How has this collapse effected production on a national scale?

Changes in graphic paper production volume in the United States and Canada (2000-2012)
  Canada U.S.
Newsprint -58% -57%
UGW -37% -12%
UFS -55% -35%
Coated -67% -26%

Overall, graphic paper production in Canada has declined by 54%, while it fell by 36% in the U.S. The decline in the hardest hit sector has been essentially equal between Canada and the U.S.: Canadian newsprint declined by 58% between 2000 and 2012, while in the U.S. the decline was 57%. For each of the other graphic paper grades, the decline has been significantly larger in Canada than the U.S. This is primarily due to two factors. First, U.S. producers of graphic papers have lower transportation and transaction costs than Canadian producers despite similar production costs, due to their close proximity to consumers (that is, the U.S. market is 10 times the size of the Canadian market), making their mills slightly (but importantly) more profitable. Second, by coincidence this era of decline corresponded to an era of a strengthening Canadian dollar against the U.S. dollar. This exchange rate effect had the impact of increasing Canadian production costs relative to U.S. production costs by 50% even while demand was declining, increasing the relative impact on Canadian producers. However, since the U.S. coated paper and UFS sectors were each approximately 10 times the size of Canada’s, in absolute terms U.S. closures outpaced Canadian closures outside of the newsprint sector by a factor of more than 2 to 1. Outside of the newsprint sector, while Canada has relatively suffered more closures, the U.S. has absolutely suffered more closures.

So we have now journeyed from the past and into the present. In our next (and final!) post, we will consider the future of the graphic paper sector.