The Canadian pulp and paper industry shipped a record 29.4 million tons of product in 1997, an increase of 5.1 percent over 1996.
The industry’s overall operating rate averaged 92 percent, up from 88 percent in 1996, in spite of 2 percent of potential production having been lost due to strikes.
Shipments of newsprint increased by 6.3 percent (553 000 tons), and printing and writing papers by 9.1 percent (420 000 tons). The other significant gains were in containerboard (4.6% or 122 000 tons) and chemical paper grade market pulp (2.7% or 227 000 tons).
Most of the growth resulted from an 8.0 percent increase in shipments to the United States, driven largely by improved demand for newsprint, printing and writing papers and paperboard.
Overseas shipments advanced by 2.8 percent to a record 9.7 million tons. Strong growth in deliveries to customers in Latin America (+ 41% ) more than offset the lower shipments to markets in Asia.
Domestic deliveries rose only marginally. A favourable economic climate boosted Canadian consumption of paper and board by nearly 6 percent, however, imports captured much of the growth. Overall, imports of paper and paperboard rose 18 percent (based on data available for 10 months), mostly in the printing and writing and packaging grades. The additional volumes came mostly from the United States, continuing the very strong growth trend in two-way trade since the FTA agreement came into effect.
A look at the quarterly data shows that much of the gain in 1997 was made in the first half of the year. The Asian economic crisis depressed demand for Canadian newsprint, pulp and paperboard in a number of key markets during the second half. In addition, China, not directly effected by the crisis, sharply reduced its imports of newsprint. The decline in exports to Asia was sufficient to cut overall Canadian shipments by 0.4 percent in the fourth quarter, compared to the last three months of 1996.
Average prices for most products were flat or down compared to 1996. As a result, the industry’s financial performance worsened in spite of the higher volumes shipped. Based on results available at the time of publication, it is estimated that the industry lost $750 million on its pulp and paper operations, compared to a loss of $146 million in 1996. For integrated producers, these losses were at least partly offset by earnings from solid wood products.
Before the crisis began, Asia accounted for 20 percent of total pulp and paper shipments from Canada and almost 60 percent of offshore exports. Although the largest markets are Japan and China, neither directly effected by the crisis, significant volumes of market pulp, newsprint and paperboard are also shipped to those countries directly effected, particularly Korea, India, Hong Kong, Indonesia and Malaysia. As a result, it is expected that exports to Asia will be down significantly in 1998, largely offsetting anticipated gains in shipments to North America, Latin America and Europe where demand conditions remain quite favourable.
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1998f
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1997
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1996
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1998/97
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1997/96
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Newsprint
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9 255
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9 357
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8 805
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-1.1%
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6.3%
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Printing and Writing
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5 250
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5 027
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4 607
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4.4%
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9.1%
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Packaging and Tissue
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4 960
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4 837
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4 700
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2.5%
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2.9%
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Pulp Exports
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10 025
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10 175
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9 852
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-1.5%
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3.3%
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Total
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29 490
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29 397
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27 965
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0.3%
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5.1%
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as a % of capacity
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91%
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92%
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88%
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The net effect is expected to be a 0.3 percent rise in total shipments. Deliveries of printing and writing papers and packaging papers and boards should advance on the strength of North American demand, while shipments of newsprint and pulp will likely decrease marginally compared to 1997 due to the weakness in Asia.
Since total Canadian capacity is projected to grow by 1.5 percent in 1998, to 32.4 million tons, this implies the industry’s overall operating rate will slip by approximately 1 percentage point to just under 91 percent.
Canadian shipments of newsprint rose 6.3 percent in 1997, to 9.4 million tons. Much of the growth came from a 5.9 percent increase in deliveries to the United States, where total demand jumped 7.1 percent as a result of a 4.2 percent rebound in consumption, and a sharp inventory swing at the consumer level (in 1996 consumers reduced their inventories by 246 000 tons; in 1997, they added 51 000 tons to their stocks, a swing of nearly 300 000 tons which boosted demand by almost 3 percent).
Offshore sales also contributed to the gains in 1997. A 54 percent increase in shipments to Latin America more than made up for losses in the Asian market and pushed total offshore deliveries to a record 2.7 million tons.
The increase in shipments lead to a 5 point jump in the operating rate to 95 percent (which is full capacity on a strike-adjusted basis).
Total shipments are expected to fall by 1.1 percent in 1998 due to a decline in shipments to China &endash; for reasons unrelated to the crisis &endash; and a drop of perhaps as much as 20 percent in deliveries elsewhere in Asia. Demand in North America, Latin America and Europe should remain strong.
It is expected that Canadian mills will operate at 94 percent of capacity in 1998. World wide, the supply demand balance for newsprint is projected to be a relatively healthy 92.5 percent.
Canadian shipments of printing and writing papers jumped 9.1 percent last year, to 5.0 million tons. Driving this was an 11.4 percent increase in deliveries to the United States where there was very strong growth in demand for uncoated mechanical printing papers and for the coated grades.
Although growth in United States demand is expected to moderate, market conditions in that country, the principal market for these grades, should remain very healthy. As well, a new 340 000 ton SC-machine starting up in the second quarter of 1998 should further fuel export growth. As a result, it is expected that Canadian shipments of printing and writing papers will increase by a further 4.4 percent in 1998.
In 1997, shipments of boxboard and containerboard to the domestic market declined as a result of increased competition from imports. As well, a drop in demand by Asian customers hurt offshore exports. In spite of these losses, overall shipments of boxboard grew by 2.0 percent and containerboard by 3.9 percent, owing to very strong growth in shipments to the United States.
It is expected that growth in United States consumption of packaging grades will help Canadian producers post another modest gain of 2.5 percent in 1998.
In 1997, Canadian exports of pulp rose 3.3 percent to 10.2 million tons, the gains being in sales to the United States, Western Europe and Latin America. The overall operating rate in this sector increased 3 points to 88 percent. Those mills producing chemical paper grade pulps operated at 90 percent of capacity, compared to 87 percent in 1996.
With 10 percent of total pulp shipments traditionally going to those Asian countries hardest hit by the currency crisis, pulp is the industry segment with the greatest exposure to the Asian situation. Exports to this region are projected to decline enough to more than offset any increases in sales to North America or Europe. Consequently, it is expected that overall shipments of pulp will slip by 1.5 percent in 1998.
