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Q4 Paper Outlook--Caution in a Moderate Market

September 1998
On the foreseeable horizon, paper prices should remain moderate—but don't let the stable situation make for stingy expenditure budgets for 1999. The word is caution, not complacency, for the market.


BY MARIE RANOIA ALONSO


Welcome to September. For many, it's a time to establish budgets for purchasing expenditures for the following year. Little doubt, in most commercial printing operations, paper is the most paramount consumable purchase for which to anticipate, sparking many a meeting or hallway conference on what to expect from the paper mills and distributors regarding pricing and availability.

How to prepare?

Two words: Remain conservative.

Bruce Janis, president of MSPGA: Management Science for the Publishing and Graphics Arts, concurs, noting that, after the much anticipated increase of roughly 6.5 percent on a typical 40/45 lb. No. 4 or No. 5 sheet hit the market at the start of this year, the market has been in a state of cautious rest.

"We have a moderate market at present and, on the horizon, there are no strong indications of rising paper prices for the remainder of this year," he reports. "That's encouraging news for those commercial printers budgeting paper for 1999."

Just Above Inflation
Janis recommends that budgets be conservative when it comes to forecasting paper expenditures for the coming year. Allow for an anticipated increase of roughly 4 percent going into 1999, he advises, which will be just a touch above inflation. "At this point, we are deep into the business cycle, so, looking at inventories for the remainder of the year and into 1999, it's wise to budget for reasonable purchases—and there is no reason to take on anything past 30 days."

How is 1998 going?

Bob Allen, manager of purchasing and scheduling at Banta/Kansas City, reports that, although the operation received a significant increase on gloss coated groundwood in the 5 percent range early this year, followed by a surprising downward shift around July, the market at present seems to be resting steady, with subtle drops in the free-sheet market.

"Typically, with the cyclical nature of the paper business, prices usually get softer, go down or stay stable during the year, especially in the fourth quarter," he reveals. "I would surmise further erosion of pricing as this year comes to a close. In fact, I wouldn't be surprised to see some lower prices yet again in the fourth quarter."

Barbara Dohman, vice president of production at Colortone, a midsized commercial printer servicing the Washington and Baltimore metropolitan areas, agrees that maintaining a conservative inventory is smart business.

"More recently, quantities of paper have been at our beck and call," she explains.

"With projected rates of increased production through 1998 to be 2 percent for coateds and uncoateds (according to most paper predictors), I feel comfortable that, at least for the foreseeable future, I will not lack paper on which to print for the price I want to pay.

"Knowing that paper is readily available—in most cases, at stable, non-fluctuating prices—enables print buyers to drag their feet in actually placing larger orders until absolutely necessary," Dohman states.

There was a time, though, when that statement would have been absolutely false—circa 1980.

Colortone's Dohman remembers this period well. "Back in the late 1980s we were forced to convey to customers that we could only hold prices based on uncontrollable increases in paper costs, especially on sheetfed offset and coated grades," she states.

At Cedar Graphics, of Ronkonkoma, NY, Vice President Michael Clark reports that the standard purchasing procedure at his firm is to batch orders, entitling Cedar to volume discounts.

Many Large Clients
"Our criteria for purchasing paper naturally includes quality, price and availability," he says. "We have many large clients that require the same stock repeatedly, so we purchase very large volumes of these stocks and have them available at all times."

Terry Degler, paper buyer for Acorn Press and a 36-year veteran with the Lancaster, PA-based printer, knows all about pulp fact and fiction. As Degler tells it, a glut—and a subsequent return to more normal market conditions—soon followed a spike in coated prices about a year ago.

"Notable sheets do tend to yo-yo around a bit, but overall, coated has been holding fairly steady for the past five or six years," Degler says. "Any spot price increases are more the result of manufacturers seeking additional profit than any large-scale market forces."

Degler says much has remained the same in the paper purchasing business in recent years. One significant change has been in the ability of paper suppliers to respond virtually on-demand to an order.

"The days of large inventories are virtually over," Degler says. "Today, we pick up the phone and order four cartons of two skids, and 90 percent of the time we can get it the next day—suppliers are becoming increasingly competitive in the area of service."

And in the absence of significant price differences, it will most likely be service that defines the paper industry in coming years.
 

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