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PÖYRY POINT OF VIEW REPORT / 9 Nov 2015

What pain relief can be given to declining paper markets?

The paper markets are currently enduring tough times. The graphic paper industry and newspapers in particular, have never really recovered from the recession of 2001-2002. Overcapacities remain in the graphic paper market and prices of newsprint have reached a historic low of around 450 EUR/t and below in the first and second quarter of 2015. At this price level even cost leaders are not able to cover their capital costs anymore.

In its latest Point of View report - “What pain relief can be administered to declining paper markets?” - Pöyry proposes a different attitude to consolidation strategy to save the declining industry and actively change paper pricing. There has been a recent spate of shutdowns of the least competitive plants which has flattened and lowered the cost supply curve and thereby lowered the price for paper. Producers have reacted by lowering their prices in a bid to regain market share.

Pöyry experts argue that the closing of the least competitive plants will further deteriorate the situation whereas strategic closings will help to stabilize or even increase prices. While the same amount of capacity exits the market, in both cases the effect is different. Rather than flattening the supply curve the slope of the curve increases.

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Christoph Euringer
Senior Consultant (Forestry)