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Paper Guru

Paper Guru

By Jack Miller

About Jack

Jack Miller is founder and Principal Consultant at Market-Intell LLC, offering Need to Know™ market intelligence in paper, print and packaging. Previously, he was senior consultant, North America, with Pira International.

Known as the Paper Guru, Jack is the former director of Market Intelligence with Domtar, where he also held positions as regional sales manager, territory sales manager and product manager. He has presented at On Demand, RISI’s Global Outlook, PRIMIR, SustainCom World and at various IntertechPira conferences. Jack has written for Printing Impressions, Canadian Printer, Paper 360, PaperTree Letter and Package Printing, along with publishing a monthly e-newsletter, MarketIntellibits.

He holds a Bachelor of Arts degree in Economics from The College of the Holy Cross and has done graduate studies in Statistics and Finance.

 

Duties and Rising Paper Prices

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In my last blog, I said that paper prices are up because, “Consolidation and mill closures have brought supply and demand more into balance.”

That statement elicited a Comment: “And it doesn't have anything to do with the administration’s new duties on imported paper, eh? Nothing like curtailing competition then raising prices to whatever you like.”

The duties only apply to coated paper. Prices are up for a number of paper grades, not just the coated papers that are the subject of the import duties. It’s economics 101: prices are determined by supply and demand. Yes, duties are part of the story, but they are not the whole story.

Coated paper is more expensive to make than uncoated, and coated prices have historically been higher than uncoated prices. Based on the 25 year trend from 1980 to 2005, the differential between 50 lb. uncoated offset rolls and 60 lb. coated #3 rolls has been close to $200. Sheet prices have followed a similar pattern.

After 2005, coated paper prices were hammered by competition from imports, and the differential is now down to about $60 per ton, even with the duties in place, with uncoated offset prices slated to rise in April.

Duties are sometimes imposed when it is determined that foreign companies are engaged in unfair practice such as dumping, or are benefiting from illegal government subsidies. This is a controversial subject. In simple terms, the argument goes like this:

Cheap imports give us cheap products. If foreign governments want to subsidize this, why not let them? But these imports cost us jobs. Yes we want free trade, but it must be fair trade. We have to stop losing good manufacturing jobs overseas. But some economists say that imposing protectionist duties on imports leads to higher prices, and that can mean more jobs lost downstream than are saved. In this case, that would be lost printer jobs. 

Actually, in this case, the duties have had little impact on coated paper prices in North America. Aggressive pricing from European mills has kept coated paper prices depressed. Many of the paper companies are publicly traded and you can see their returns. Newpage lost $674 million in 2010. The uncoated mills, Domtar and IP, are doing much better than coated mills. Consolidation and supply and demand are driving prices far more than are duties.

A complex picture indeed, and beyond the scope of this blog. But I did explore the subject of coated paper duties more fully in the May 2010 issue of Printing Impressions.
 

Industry Centers:

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COMMENTS

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Most Recent Comments:
Jack Miller - Posted on April 12, 2011
Despite declining demand, the uncoated freesheet mills have balanced supply and demand by a combination of downtime and permanent mill closures. This became a reality after a series of acquisitions by IP and Domtar gave them a market share large enough that price became more important than volume. This was yet another inevitable effect of the law of supply and demand: low prices for 25 years led to a reduction in supply as mills closed or were acquired. If prices are too high for too long, demand will be reduced, perhaps permanently - as was rightly pointed out. If prices are too low for too long, supply will be reduced, and this has happened. The market is global, and for the uncoated freesheet mills, the danger is that prices will get too high and invite more imports. The weak dollar has provided some insulation, but there is a limit to this. Mills have reduced costs, and can probably go further but even if they “break the unions” they will never get labor rates as low as China. So, how do you justify investment in a declining market, when offshore competition has a lower cost base? Answer: you don’t. So, you find another way, and FutureMark has done this. With a recycled mill in an “urban forest,” they have a low cost base and a market segment that is growing. Printers have also struggled with low prices for many years, but despite consolidation and the loss of thousands of printers, there is still excess capacity. All too often, presses are sold, not shut down, and the capacity remains. Too many printers are willing to sell below cost, as was highlighted in a recent discussion on LinkedIn. Still, as a recent blog on the PIA ratios (http://blog.printing.org/blog/9352) points out, some printers are, in fact, managing to be profitable. And in a study I am doing for PRIMIR, I’ve interviewed several printers who are able to pass on the price of paper and make a profit. They provide quality and service, and are able to differentiate themselves and actually grow their ink-on-paper business without giving it away
Russ Beegan - Posted on April 07, 2011
Hello Jack...you wrote: It’s economics 101: prices are determined by supply and demand. If that is the case, please explain to me how the uncoated mills are now on their 4th increase over the last 18 months and there is little demand? The mills have never lived by the the laws of Economics. They can try and manipulate supply and demand but they are not fooling anyone. Oversupply, little demand, and uncoated offset pricing is at an all time historical high??? Check the lead times. 1 to 2 weeks for delivery is not a "tight" market. In this digital world we live in now there is always only 1 end result...continually raising paper prices GUARANTEES less demand that will never come back. The mills and post office seem to have the same business model. Demand is declining and less an less people have a need for our products or service so lets raise prices!! Genius.
Larry Edwards - Posted on April 06, 2011
US paper manufacturers need to realize this is a global economy. They have not invested in new paper machines, sheeting equipment and new technologies for the past 20 years. As a result, they have boxed themselves in and are now competing with off shore mills with paper machines more than double their size and 2-3 times faster. Why should American consumers be penalized for their lack of vision and planning. Instead of government imposing huge tariffs to protect American paper manufacturers, perhaps our government should reduce taxes on provide tax incentives for domestic mills to invest in state of the art paper machines to compete globally. Perhaps, US paper manufacturers also need to break the labor unions, so they can play more on a level playing field?
Tein Atkerson - Posted on April 05, 2011
Pricing mechanics are very complex, and it is simplistic to boil it down to tariffs. One particular point you made -- the one about jobs -- is worth reinforcing. Andy Grove, the former CEO of Intel and one of the legendary leaders who helped establish America's technology leadership through Silicon Valley -- wrote an excellent essay in BusinessWeek on the importance of manufacturing jobs to the U.S. economy: http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm One of Mr. Grove's best arguments is when you let manufacturing move abroad, it's not just the jobs you lose, it's the engineering expertise, the technical processes, and the learning cycles that go along with the ability to produce something. In other words, you give up not just the immediate manufacturing opportunity but you also make it very difficult to reenter the game at a competitive level. That's one of the points FutureMark Paper (www.futuremark.com) has made when people suggest recycled paper production should be relegated to producers abroad, especially those building state of the art facilities in Asia. Paper producers should invest in new recycled production capacity here in the U.S., siting clean mills near urban centers to make the most of our country's waste paper resources.
Click here to view archived comments...
Archived Comments:
Jack Miller - Posted on April 12, 2011
Despite declining demand, the uncoated freesheet mills have balanced supply and demand by a combination of downtime and permanent mill closures. This became a reality after a series of acquisitions by IP and Domtar gave them a market share large enough that price became more important than volume. This was yet another inevitable effect of the law of supply and demand: low prices for 25 years led to a reduction in supply as mills closed or were acquired. If prices are too high for too long, demand will be reduced, perhaps permanently - as was rightly pointed out. If prices are too low for too long, supply will be reduced, and this has happened. The market is global, and for the uncoated freesheet mills, the danger is that prices will get too high and invite more imports. The weak dollar has provided some insulation, but there is a limit to this. Mills have reduced costs, and can probably go further but even if they “break the unions” they will never get labor rates as low as China. So, how do you justify investment in a declining market, when offshore competition has a lower cost base? Answer: you don’t. So, you find another way, and FutureMark has done this. With a recycled mill in an “urban forest,” they have a low cost base and a market segment that is growing. Printers have also struggled with low prices for many years, but despite consolidation and the loss of thousands of printers, there is still excess capacity. All too often, presses are sold, not shut down, and the capacity remains. Too many printers are willing to sell below cost, as was highlighted in a recent discussion on LinkedIn. Still, as a recent blog on the PIA ratios (http://blog.printing.org/blog/9352) points out, some printers are, in fact, managing to be profitable. And in a study I am doing for PRIMIR, I’ve interviewed several printers who are able to pass on the price of paper and make a profit. They provide quality and service, and are able to differentiate themselves and actually grow their ink-on-paper business without giving it away
Russ Beegan - Posted on April 07, 2011
Hello Jack...you wrote: It’s economics 101: prices are determined by supply and demand. If that is the case, please explain to me how the uncoated mills are now on their 4th increase over the last 18 months and there is little demand? The mills have never lived by the the laws of Economics. They can try and manipulate supply and demand but they are not fooling anyone. Oversupply, little demand, and uncoated offset pricing is at an all time historical high??? Check the lead times. 1 to 2 weeks for delivery is not a "tight" market. In this digital world we live in now there is always only 1 end result...continually raising paper prices GUARANTEES less demand that will never come back. The mills and post office seem to have the same business model. Demand is declining and less an less people have a need for our products or service so lets raise prices!! Genius.
Larry Edwards - Posted on April 06, 2011
US paper manufacturers need to realize this is a global economy. They have not invested in new paper machines, sheeting equipment and new technologies for the past 20 years. As a result, they have boxed themselves in and are now competing with off shore mills with paper machines more than double their size and 2-3 times faster. Why should American consumers be penalized for their lack of vision and planning. Instead of government imposing huge tariffs to protect American paper manufacturers, perhaps our government should reduce taxes on provide tax incentives for domestic mills to invest in state of the art paper machines to compete globally. Perhaps, US paper manufacturers also need to break the labor unions, so they can play more on a level playing field?
Tein Atkerson - Posted on April 05, 2011
Pricing mechanics are very complex, and it is simplistic to boil it down to tariffs. One particular point you made -- the one about jobs -- is worth reinforcing. Andy Grove, the former CEO of Intel and one of the legendary leaders who helped establish America's technology leadership through Silicon Valley -- wrote an excellent essay in BusinessWeek on the importance of manufacturing jobs to the U.S. economy: http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm One of Mr. Grove's best arguments is when you let manufacturing move abroad, it's not just the jobs you lose, it's the engineering expertise, the technical processes, and the learning cycles that go along with the ability to produce something. In other words, you give up not just the immediate manufacturing opportunity but you also make it very difficult to reenter the game at a competitive level. That's one of the points FutureMark Paper (www.futuremark.com) has made when people suggest recycled paper production should be relegated to producers abroad, especially those building state of the art facilities in Asia. Paper producers should invest in new recycled production capacity here in the U.S., siting clean mills near urban centers to make the most of our country's waste paper resources.