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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.

 

Paper Prices Going Up or Down?

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In 2009, North American printing and writing paper shipments were down 16% from 2008. During the fourth quarter, in the aftermath of the greatest demand collapse the North American paper market has seen in recent memory, price increases were announced on both coated and uncoated papers. For uncoated papers, a second round of increases was announced this January, to be effective in February.

Does this make sense?

Well, yes it does. True, demand is down sharply, but capacity is down, too, and supply and demand are more balanced than was typical during most of the past two decades. With supply and demand balanced, mills are able to pass their costs on to customers. Mills have been under cost pressure for years, and have consistently failed to return the cost of capital, often posting outright losses. Several mills have gone into Chapter 11.

Mills in the U.S. received something of a bailout when they discovered that a subsidy for burning bio-fuels could apply to black liquor which the mills have always burned for fuel. This subsidy pumped billions of dollars into the industry, but this subsidy ended on December 31, and so the cost pressure is back. As the sales VP for one mill explained, in 2009, the coated mills gave the subsidy to their customers, and now they are again scrambling to cover their costs.

Will these prices increases hold, and will more increases follow? The dynamics are a complex mix of positives and negatives, and the mix is different for different grades. The coated paper price increases announced during Q4 2009 have all but evaporated, but the uncoated increases have held, and a second round of increases was announced in January to be effective in February.

A major pressure point on the supply demand equation, especially for coated papers, has been imports. With the weak dollar, the U.S. market is less attractive than other markets, so this pressure has been lessened. Further, an anti dumping case on coated printing papers has been filed against China and Indonesia. A full investigation by the Department of Commerce is underway, and if duties are imposed, this will also relieve downward pressure on prices.

Regarding the shipment numbers, one must be very careful when examining statistics. North American printing and writing paper shipments were down 16% for the year 2009, but were up 3.5% in December 2009 from December 2008. This would appear to be a sign of strength—a solid rebound. While this is certainly positive, it is an increase from a very depressed level, a level depressed not only by weak consumption but also by inventory liquidation.

The inventory liquidation is over, and inventories are now low. This factor, more than the 3.5% shipment increase, suggests an environment favorable to paper price increases. For uncoated papers, prices are at reasonable levels, and increases are likely to be modest. Coated paper prices are more depressed, and if anti-dumping duties are imposed, the recovery in prices may well be more rapid.

How can you tell if a price increase will hold? It’s always a matter of supply and demand. Are you able to get as much paper as you need before the price goes up? If so, it is likely that supply is more than adequate and the increase will fail. If not, supply may really be tight, and the increase will hold—unless the tightness is artificial, driven by excessive pre-price increase buying.

Industry Centers:

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COMMENTS

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Most Recent Comments:
Alexis - Posted on March 29, 2011
I'm utterly confused here? Are the prices of paper going up?
Warren - Posted on February 12, 2010
Russ, I understand your frustration and agree that higher paper prices can result in lower demand for print. However, the entire ink-on-paper supply chain is literally fighting for its survival. I'm sure you will agree that no particular link in that supply chain is willing to stand up and volunteer to leap off the cliff. Not covering your cost in business is not a strategy. In the end, the print customer blames the printer, the printer blames the merchant, merchant blames the paper mill, the paper mill blames the pulp mill, the pulp mill blames the chemical suppliers and on it goes. Let's face it, we're all wondering who "moved our cheese?"
Russ - Posted on February 12, 2010
Spoken like a true former paper Executive. Regardless of whether beancounters think the environment is "favorable to paper price increases," common sense would suggest the end result will always be less paper ordered as a result of of this increase. Once those orders are lost to the Multitude of New Media options available to marketers these days, then what?? Another price increase? The post office has followed this model for a while now. How's that working out? Raising prices when they are already at Historical Highs for paper in this economy? This is nothing more than a reminder for Marketers and Print Buyers to reduce quantities, basis weights, sizes, pages or eliminate print altogether.
Click here to view archived comments...
Archived Comments:
Alexis - Posted on March 29, 2011
I'm utterly confused here? Are the prices of paper going up?
Warren - Posted on February 12, 2010
Russ, I understand your frustration and agree that higher paper prices can result in lower demand for print. However, the entire ink-on-paper supply chain is literally fighting for its survival. I'm sure you will agree that no particular link in that supply chain is willing to stand up and volunteer to leap off the cliff. Not covering your cost in business is not a strategy. In the end, the print customer blames the printer, the printer blames the merchant, merchant blames the paper mill, the paper mill blames the pulp mill, the pulp mill blames the chemical suppliers and on it goes. Let's face it, we're all wondering who "moved our cheese?"
Russ - Posted on February 12, 2010
Spoken like a true former paper Executive. Regardless of whether beancounters think the environment is "favorable to paper price increases," common sense would suggest the end result will always be less paper ordered as a result of of this increase. Once those orders are lost to the Multitude of New Media options available to marketers these days, then what?? Another price increase? The post office has followed this model for a while now. How's that working out? Raising prices when they are already at Historical Highs for paper in this economy? This is nothing more than a reminder for Marketers and Print Buyers to reduce quantities, basis weights, sizes, pages or eliminate print altogether.