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Q4 PAPER OUTLOOK -- Cuts in Capacity

September 2001
Paper prices and production drop as a slow U.S. economy continues to plague suppliers.


A flagging U.S. economy, an increase in offshore paper and the never-ending merger and acquisition dance among paper producers is continuing to keep the price of paper low, reports NAPL Chief Economist Andrew Paparozzi. In his latest survey of printers, 72.5 percent of those polled responded that paper prices are stable.

However, what is more interesting is the growing number of printers that are reporting falling paper prices. In June 2001, 18.5 percent indicated prices were falling. That number has increased progressively from last summer when less than 1 percent of Paparozzi's sample said prices were falling. But by January of 2001, 3 percent of those surveyed noted prices were declining and, by March 2001, just over 6 percent said prices were dropping.

"Although it is still a minority, it is a growing minority. There is a very, very clear trend toward declining prices," explains Paparozzi.

It's a trend that Craig Brodock, president of Brodock Press in Utica, NY, has also noticed in recent months. "Over the past year, Brodock has found the coated sheetfed paper market to be fairly stable. Recently, we have incurred a slight price decrease in premium and No. 1 sheets," he reports.

Soft Economy, Demand
The dropping paper prices are a result of the soft demand from a struggling U.S. economy, reveals Robert Smith III, vice president of purchasing for Mechanicsburg, PA-based Fry Communications.

"The midpoint of 2000 marked the high water mark for coated paper pricing. The 12 months since have seen a steady deterioration in the perception of global economic vitality. It almost seems that many are stunned at how quickly things got so terrible."

And Paparozzi does not expect to see any major changes in pricing while the economy remains mired. Still, when the much anticipated economic turnaround will arrive remains unclear.

"The economy remains the dominant issue. We still don't have any definite authoritative signs that the economy has indeed begun to turn around. No one knows when it is going to change. There is a huge difference of opinion as to how strong of a recovery we will see.

"It is very likely that it will be a somewhat muted recovery. It will stop well short of the growth that we enjoyed in the mid-1996 to mid-2000 years. The idea that we were going to have a robust, second half recovery is obviously not going to happen," he says.

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