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Printers Winning on Paper

April 1999

"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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