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Paper Outlook--Prices Are Going Soft

January 1999

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."


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