Coated Paper Prices Debate Continued
As previously reported on PIworld.com, D. Edward Tree wrote on Dead Tree Edition that coated paper prices were set for a collapse, citing falling demand. Paper Guru replied that paper prices would be determined by supply and demand, not by demand alone, and suggested that the mills would balance supply and demand. D. Edward Tree responded that the coated mills were in bad shape financially and could not afford to idle mills, and thus would not be able to balance supply and demand.
First, this has been a good discussion, and the above synopsis does not do it justice. If you have not read the previous posts, I recommend that you do.
I would not presume to predict what NewPage, Verso, Sappi or any papermaker would do about idling mills, nor am I here to tell them how to run their businesses. Rather, I’m trying to point out some market dynamics that may be not be fully understood by all.
Paper consumption in North America is declining. This is a structural decline, and not just a cyclical decline. That means we can’t expect paper demand to “return to normal” when the economy recovers. This is the new “normal.” That point is not in debate, though experts do differ on the rate of decline.
This was not always the case, and there was a time when it seemed to make sense to take short-term measures to maintain cash flow until demand came back—cut prices to get orders, build inventory and, worst-case, take temporary downtime. Note that I said “seemed to.” Faced with the choice of lower prices or downtime, the better choice is downtime (I’ll get back to this).
In reality, the (perceived) choice was often lower prices and downtime, or just lower prices, and the mills opted for “just lower prices.” This led to more than a decade of negative returns.