Long, Hot Summer for Coated Paper Prices
Over the past month or so, there’s been a lot of discussion about coated paper prices. It began with Verso’s announcement in early April of a May 1 increase of $1.50 to $3.00 per cwt. for its coated paper, and then most coated mills followed suit and announced increases to be effective in May or June.
Naturally, there was the question of why these increases were justified. Demand? Clearly not. Cost? Debatable.
Before we get into the demand and cost issues, let’s remember that it’s supply and demand— not cost, and not demand alone—that determine prices in the short run.
So why are prices up? Well, first, let’s check if they are really up?
Coated sheet prices in May are right about where they were a year ago, but freesheet rolls are down about $2 per cwt. and coated mechanical prices are down a bit less. To some extent, the mills are trying to recover these losses.
Mills announce increases. Then, sometimes they are implemented, and sometimes they are not. Sometimes they are implemented, but evaporate because of competitive pressures over the next month or two.
Mills don’t announce price decreases. I can remember announcing three increases in a year, yet prices in December were exactly where they had been at the start of the year.
Why do the mills announce price increases and not implement them? Often, mills seek the increase because of a lack of profitability. One might say the move is cost driven, even if costs haven’t changed much in the past month or two.
Then why don’t they implement the increase? Supply and demand—because supply exceeds demand, competitors hungry for orders will take orders at a lower price. This proves once again the lack of a direct relationship between cost and price in the short run.