Q4 Paper Outlook — Cuts in Capacity
“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.
Paparozzi does note that he has begun to see printer confidence rise in NAPL’s printing business index. “In our surveys, we are starting to see that printer confidence is beginning to rise. Our printing business index has leveled off after it peaked last August. However, it is important to recognize that the rising optimism is based on the expectation that the economy is going to respond to the tax and interest rate cuts by year’s end,” Paparozzi reveals.
Interest Rate Cuts
While key indicators appear to have stabilized for now, the economy’s next move will depend on how well it responds to the stimulus that the U.S. Treasury and the federal government have applied.
The result of this current economic uncertainty is serving to fuel the merger fever that the paper producers have been caught up in this past year. “The market is extremely competitive and, given a stumbling economy, this could negatively impact the smaller mills and merchants, as they will not be able to survive the down cycle. We forecast more acquisitions and consolidation,” states Brodock.
The slowing economy has also forced paper mills and merchants to look for ways to hang onto their existing business base by being more willing to negotiate prices than they would be in a more prosperous cycle, he claims.