Hayes blames the rise in prices and tightening availability on the strong U.S. economy, and the growing Asian and European markets. "The reason for the tight paper market has to do with a strong global economy. Generally, all three of the major paper markets—Europe, the Americas and East Asia—are all experiencing strong economic growth. In addition, there has not been any significant capacity expansion on the grades used by our customer base," he explains.
Although paper prices are rising, it is important to step back and look at the price increases in context, Paparozzi urges. He points to 1998, when prices fell dramatically in response to the Asian financial crisis. "Paper prices are rising from very low levels. They fell, and fell substantially for about a year and a half," he remembers.
"You get used to doing business with your key material at a certain level of cost. Then something changes, whether it is an international recovery or something else. Suddenly, those costs are now increasing," Paparozzi says. And, as long as the world economy continues to churn along at its current pace, it is almost inconceivable that printers will begin to see prices moderate any time soon.
In fact, Hayes reports that printers may not see a break in pricing until 2001. "We suspect that there may be one remaining increase for each of the major grades of paper before the end of the year. Next year, our crystal ball is telling us that the market will be characterized by flat or declining prices—based on new capacity coming online and a likely economic slow down."
Paparozzi agrees and does not predict price moderation for at least a year. "I doubt that it is going to happen this year. It's very clear that Alan Greenspan is determined to slow the economy. He feels it's growing too fast. He wants to do it very gradually, and it may take him a year to do it."