Open Enrollment | Subscribe to Printing Impressions HERE
Connect
Follow us on
Advertisement
 

Paper Outlook--Prices Are Going Soft

January 1999
BY ERIK CAGLE


It was around this time last year that paper buyers were being hit with an increase of $3 per hundred weight; approximately 6.5 percent on a typical 40/45 lb. No. 4 or No. 5 sheet. What a difference one year makes.

As everyone else worries about whether their computers and household appliances will survive the Year 2000 (Y2K) bug scare or whether the new millennium party should start in 2000 or 2001, printers and their customers have other motivations to look toward the future with wonderment. No, call it glee. The paper market is soft to start the first quarter of 1999, with supply exceeding demand, and pricing could soften even more through the balance of the year.

The flaccid condition may remain for quite a while. The annual Capacity Survey of the American Forest & Paper Association (AF&PA) found that capacity growth for pulp, paper and paperboard in the United States during the next three years is expected to be the slowest of any three-year period on record.

There shouldn't be any surprised looks on the faces of paper buyers. The market has been in a state of "status quo" for many months, according to Bruce Janis, president of MSPGA: Management Sciences for the Publishing and Graphic Arts.

"I foresee no great changes from where we've been the last four or five months, which is plenty of capacity and plenty of availability," Janis says. "During the first and second quarters [of 1998], I thought we were at the top of the business cycle; I believed conditions would be softer than they are now.

"Our economy's incredible," he adds. "The Asian flu is going to do nothing more than contribute to deflationary pressure."

An excess in paper supplies from European and Asian sources is easily keeping the supply demands in check. Despite a strong demand from magazine publishers and catalogers, prices aren't going anywhere in the not-too-distant future.

"In the face of strong ad pages and catalog sales, it's amazing that paper producers aren't able to institute price increases," Janis notes. "It's clearly an oversupply problem, and that's definitely beneficial to publishers."

Pricing levels aren't being buoyed from the strong demand due to the excess capacity. A drop in advertising pages, which would add even more to oversupply, would help bring down prices further this year, Janis believes. He sees publishers getting some further reductions by the fourth quarter of this year.

"If you're a magazine or cataloger, you can probably go to the printer in the fourth quarter, say that you want relief on paper, and your printer will probably find it for you," Janis says. "If they get aggressive, their printers can make them happy. There's ample opportunity to go out and buy cheap paper."

C. Stephenson Gillispie Jr., chairman, president and CEO of Cadmus Communications, concurs that prices will remain flat—or even decline—given the influx of paper from Europe and Asia. His company is following key indicators to evaluate the long-term market impact.

"We'll watch for a decline in imports from Europe, since Europe is sending supplies to Asia that, in turn, are being sent to the United States," Gillispie points out. "And, we'll closely follow the strategies of domestic mills to see if they shut down machines to reduce inventory."

What's bad news for the Asian economy, says William K. Traub, vice president of marketing for Brown Printing, is a sigh of relief for paper purchasers.

"Part of it is that the Asian economy is in terrible shape. Ad pages are up overall, but off slightly from the original forecast, and some catalog mailings are down," Traub remarks. "You know the paper market is soft when there are price reductions in the fall.

"On the bright side," he adds, "lower paper costs are going to help offset the postal increases."

Brian Kullman, vice president of paper services for R.R. Donnelley & Sons, became aware that the market was softening last summer, which is unusual, given it's a time when demand is generally headed toward a seasonal peak.

"It's not due to a lack of demand or unusual publisher inventory levels. The issue is imports," Kullman says. "The Asian recession and resulting decrease in demand for paper has been exported to America, particularly groundwood paper. Figures from late last summer show the European industry is running close to capacity—its rate of manufacturing is a comfortable operating rate. As further statistical evidence, paper has been redeployed in North America."

Kullman notes that price levels in the United States last summer made America an attractive choice for European mills. As for Asia, he feels paper consumption should return to normal levels there once the recession concludes.

There could be a paper thawing once spring arrives, but until then, "it'll be a tough winter for paper makers and a good winter for buyers," Kullman says. He sees more coated freesheet capacity washing up on U.S. shores.

In terms of growth for the paper market, he predicts slow growth in America with little to no growth in Asia. Both the former Soviet Union and Latin America are also floundering.

"I don't believe anyone's forecasting a collapse in the market like we saw in 1996," Kullman remarks.

Not everyone sees the excess of foreign supply in glowing terms. According to Janis, it's a matter of quality.

"Who wants to buy Russian paper through a North Korean bank?" he asks. "Just because paper is available doesn't mean it's good paper. The question is: Do you want it once you have it? If there's foreign availability from European mills, it's a lot different than paper from Malaysian mills."

Additionally, not everyone shares the view that prices will remain soft for much of the year. Kelly Gilroy, chief marketing and sales officer for Solar Communications—which annually purchases more than 25 million pounds of mostly uncoated return card stock for its customers' direct marketing needs—sees a price increase on the horizon.

"Paper prices have been stable or slightly lower, depending on the grade, for most of 1998," Gilroy remarks. "Solar sees first quarter 1999 prices staying at the same level as last quarter 1998. However, after the first quarter, there is potential for mill prices to increase due to supply reductions caused by consolidations and/or shutdowns.

"We have not seen paper price stability for this length of time since 1994," Gilroy concludes. "Based on historical trends, paper price increases may stick after the first quarter, when paper demand begins to increase for 1999 spring campaigns."
 

COMMENTS

Click here to leave a comment...
Comment *
Most Recent Comments: