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Printers Winning on Paper

April 1999

Let's face facts. Paper is not exactly chic these days. There is nothing more appalling than a printing commodity strutting around while wearing last year's price tag.

Unless, of course, you're a paper purchaser for a commercial printer. Unchanged prices make this person the most popular man/woman in the eyes of estimators and the person drawing up the next budget.

That explosion you heard was definitely something else, not an increase in paper prices. Uncoated free sheet experienced a first quarter boost in some circles, but a number of observers wonder if they will take hold.

In short, nothing's changed since the first quarter. The market is still as "soft" as it was in the second half of last year, and some pundits are actually predicting prices will reach the rock-bottom level realized in 1996.

One paper purchaser for a major national printer, speaking on the condition he not be identified, admitted that a degree of the paper stagnation is due to the fact some printers are seeing some softness in print volume. Given that April-May is typically a slower period for printers, demand won't be juicing prices any time soon.

"Happy days are here again for the publisher," exclaims Bruce Janis, president of MSPGA: Management Science for the Publishing and Graphic Arts and a consultant with his hand on the paper pulse. "This is a very positive environment for publishers. Conditions have continued to soften, and prices have continued to weaken. I see continued softness in the near future."

Not only is Janis confident that prices will not go up in the second quarter, he believes printers can budget for flat or decreasing paper prices in both the third and fourth quarters of 1999.

There is little question in the minds of some followers that the slowed growth in the commercial printing industry has helped retard price levels. Andrew Paparozzi, chief economist for the National Association of Printers and Lithographers, believes an economic kickstart in the industry is needed before paper mills can enjoy a pricing upswing.

"We need to see stronger growth in the printing industry, and stronger demand from printers. Right now, paper is available and there's no reason for printers to be stockpiling it," Paparozzi points out. "There's no indication that prices are going to rise, so there's no reason for printers to be hedging and building inventories as protection against possible future price increases.

"What we've seen," he adds, "is that the industry is still growing, but the rate of growth has slowed, largely because corporate profits, which are such an important measure of business demand for print, have weakened."

He notes the correlation between the slowing in the industry's economy and the softening in paper prices—the beginnings of both which can be traced back to a year ago.

"Prices today are actually lower," Paparozzi says, "reflecting the noticeable moderation in the paper industry's commercial customers. Unless we see some kind of significant increase in printing activity, which would translate into stronger, greater demand for paper, I don't see anything lighting a fire under the demand for paper. Certainly not in 1999."

Mark Noe, purchasing manager for Lehigh Press Cadillac, Broadview, IL, feels the most noteworthy development in the past three months is the weak demand for coated grades. Some mills, he says, have moved tonnage at lower prices through non-traditional distribution outlets.

Like many paper purchasers, Noe says the current softness can be attributed to an excess in foreign capacity, which is washing up on U.S. shores.

"A second factor relates to reduced costs at North American mills through reductions in labor and administrative expenses," Noe says. He believes coated free sheet could climb by as much as 5 percent in the second quarter, and believes uncoated free sheet will see a slight reduction from the announced increase.

In spite of significant mill downtime being taken by the industry, paper demand remains low and any grade of paper is readily available with soft pricing being the norm, according to Addis Hilliker, the vice president of supply chain at Banta Corp.

"Increased availability of foreign paper available to domestic markets has resulted in an extremely soft market," Hilliker says. "Without a significant rebound in world economies, the foreign paper supply will continue its growth."

Brian Kullman, paper supply chain strategist for R.R. Donnelley & Sons, notes that a buildup in mill inventory is also depressing prices. Strong import levels, particularly coated free sheet, have also played a significant role in affecting the domestic market.

As for uncoated free sheet, Kullman claims that particular market has been "on its back" for some time. "There is an attempt to get a price increase. That won't necessarily translate into price increases in other grades, and I don't know whether the market will accept that increase or not," he says, noting that prices are starting to get down toward the lows that were seen in 1996.

"They're not there yet, but they're a lot closer than they were even six months ago," he contends. "So based on recent history, the market is starting to approach the low point seen in '96, which was a terrible market from the paper makers' perspective. How much lower it will go, I'm not sure."

C. Stephenson Gillispie, chairman, president and CEO of Cadmus Communications in Richmond, VA, has been keeping a watchful eye on other aspects within the paper community that are affecting prices.

"We continue to witness significant consolidation in both the mill and merchant communities," he says. "Xpedx's purchase of Zellerbach in July of 1998 was notable in that, while very well managed, the merger effectively narrowed the field of national-level distributors to two players."

Gillispie concurs with his colleagues on the subject of pricing levels, which he expects will remain flat through the balance of the year. "It is questionable whether the recent attempts to increase offset mill prices will take hold and have any material impact," he says.

Another paper purchaser who doubts price increases will take hold is Diane Peters of Southfield, MI-based Grand River Printing & Imaging.

"Pricing seems to be advantageous right now, and I don't see much of a change in that," she says. "The offset market recently had a price increase. It looks like it's holding, but I'm a little skeptical as to whether they will be able to keep that increase."


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