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Q1 PAPER OUTLOOK -- Market Taking Stock

January 2003
BY MARK SMITH


Predictions of the paperless office may have lost their edge, but not the threat of a paperless printing plant. One only has to go as far back as 1995 to find the last time some printers were faced with shutting down their presses for a lack of paper to run through them.

The buyer's market of recent times saw printers, and their clients, being doubly blessed with a ready supply of paper at historically low prices. Everyone knew it was just a matter of time before the market swing came, though. In the case of paper, the more apropos saying would be: what goes down, must come up.

Lester Samuels, co-managing partner of Pictorial Offset in Carlstadt, NJ, says he can pinpoint exactly when the market for web papers turned. "It happened on Friday, November 15th," he recalls. "We started getting calls from the mills to notify us that they were going on allocation. Paper that was immediately available for shipment from a mill went to having a four-, six- or eight-week delivery date. The change seemed to happen at all the mills at the same time."

Samuels qualifies this observation by pointing out that, in the web grades, Pictorial almost exclusively buys number one and number two coated stocks. The organization also has an extensive sheetfed printing operation. "Sheetfed paper is not tight at all right now," the company exec notes. "There is a lot of foreign competition and imports in that market segment—with more than 50 percent of the sheetfed paper imported today—which helps balance supply and demand."

Inventory Reductions

There is some element of a self-fulfilling prophecy at work here. "Everybody in the system, including mills and printers, had brought their inventories down over the last two-and-half to three years," Samuels notes. "Suddenly, printers saw they could be stuck with no paper and started placing orders. Supply concerns have triggered a certain amount of hoarding of paper."

As one mill goes on allocation, people who buy on the spot market then turn to the other mills to try and get paper, which can force them to go on allocation, he points out. This leads to a domino effect in the market, at least in part driven by "what ifs" and emotion.

In this case, there are hard numbers to back up the concern. For example, the most recent report from the Montreal-based Pulp and Paper Products Council (PPPC) showed that demand for all printing and writing papers in North America rose 1.9 percent in October 2002, compared to the same period last year. The post-9/11 business fallout undoubtedly accounts for some of the difference, but the year-to-date data all show an increase in paper demand, albeit a more modest +0.5 percent. The more telling finding is that paper production for the first 10 months of 2002 was running 1.1 percent lower than the previous year.
 

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