Paper Outlook — Cutting the Bottom Line

The good news: a reading above 50.0 means more printers surveyed report activity is picking up rather than slowing down. It’s the downward trend that is troubling.

According to the report, recent PBI performance underscores the likelihood of major challenges ahead for graphic communications companies, despite brisk growth in current sales.

“Sales performance may suggest that business is good and there’s little to worry about. Unfortunately, that’s not the case,” cautions Joseph Vincenzino, NAPL senior economist. “Going forward, the economy will slow, and growing or even maintaining profits will get a lot more difficult. Companies must be prepared.”

In the “46th Annual Survey of Paper, Paperboard and Pulp Capacity” released earlier this year, the American Forest & Paper Association (AF&PA) reported that paper and paperboard capacity in the United States continued to edge lower in 2005, declining 0.8 percent. The survey estimates that paper and paperboard capacity will decline another 2.0 percent in 2006, then expand slightly in 2007 (up 0.2 percent) and 2008 (0.4 percent).

According to AF&PA, total capacity contracted 4.4 percent between 2000 and 2005, for an average annual decline of 0.9 percent.

Ongoing initiatives to bring production more in line with demand provided support for the largely successful attempts to boost paper prices in the first half of the year. Differences always exist among the various grades, of course.

Another round of price increases had been widely predicted for the third quarter of the year, coinciding with the normal cyclical uptick in demand. Stora Enso, NewPage and International Paper were among the companies to get in early with increases set for July 1st on coated freesheet or groundwood. More announcements of increases were expected, though generally anticipated to be modest.

Greater uncertainty was injected into expectations for the fourth quarter and beyond by the sudden flare-up of conflict between Israel and Lebanon (or at least its Hezbollah faction). Some stability had been returning to oil prices—albeit at an elevated level—as the world market adjusted to the level of tension in the Middle East. However, talk of Syria and Iran having played a part in the conflict at least opened the possibility of a wider conflict that could lead to energy price shocks.