Paper Forecast — Consolidation Cuts Through
Commercial printers are left to wonder what impact all this consolidation will have on the availability of various grades and on paper prices, which are still on the rise. According to Andy Paparozzi, chief economist for the National Association for Printing Leadership, 23 percent of its research panel polled in January believe paper is less available than it was three months ago while only 4.4 percent feel it is more available. In January 1999, 7.3 percent felt it was less available while 16.4 percent felt it was more available.
While the availability perception has clearly changed in the course of the last year, in both polls more than 70 percent of the respondents felt paper availability had not changed. Until there is movement on that key statistic, Paparozzi doesn't see any shift in speculative purchasing or inventory accumulation by printers.
Given the highly fragmented nature of the paper manufacturing industry, the consolidation represents little more than removing a bucket of sand from the beach. A big bucket, no doubt, but a bucket nonetheless.
Indeed, a number of printers were not at all surprised by the transaction activity among the companies that supply this integral printing commodity.
"The recent wave of mergers is predictable given the chronic poor earnings of the forest products industry and relatively low growth rates of markets," states Brian Kullman, paper supply chain strategist for Chicago-based R.R. Donnelley & Sons. "It is what happens when an industry fails to make its cost of capital and investors bid down stock prices. The industry will be able to realize cost savings in procurement, freight, production schedules, trim optimization, among others, as a result of these mergers."
Kullman believes the market will remain true to supply and demand levels, and perhaps the somewhat smaller pool of paper companies will show a little more pricing discipline. The slow rate of capacity expansion is a more important issue.