Pulp & Paper News

RISI VIEWPOINT: Is the worst over for the European graphic industry? Not really…

BRUSSELS , March 16, 2016 (Viewpoint) - 

Capacity utilization on all graphic paper markets in Western Europe was steadily rising through 2015, ultimately helping to improve the operating conditions for many paper producers in Western Europe. Higher operating rates on the back of historically low margins have also allowed prices to start rising for many graphic grades, although increases are happening a bit slower than originally predicted. But these latest developments should not be considered as an end to the difficult times the graphic markets have been experiencing since 2007. Market conditions will remain challenging not only for producers, but also for anyone directly or indirectly linked to the graphics industry.

First of all, demand for the graphic grades remains in a state of secular decline, and contracted more than average during 2015. Although the majority of the losses were concentrated in newsprint, other segments such as coated magazine are also suffering greatly from digital substitution and the weak economic conditions in the region. Furthermore, the European graphic industry remains heavily linked to developments in global markets, as net exports are still accounting for a large proportion of total production. However, in the end net exports contributed less to the tightening of the European supply and demand balances. Despite the competitive boost from the weak euro, capacity closures making a few global regions more import dependent, and the surge of trade walls, mainly in North America, opening some opportunities for European producers, the heavy demand drops in other mature markets, the weakening of other currencies sometimes pegged to oil prices, such as the Canadian dollar, Russian ruble and Brazilian Real, and the continued capacity conversions away from graphic into other paper and board markets in Europe have somewhat limited the possibilities for many European companies abroad. Consequently, the current tightening of the supply and demand balance cannot be assigned to better consumption trends, which leaves changes in supply as the only other explanation.

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