While paper mills will need to find new ways to operate more efficiently, Paparozzi can't speculate on whether a continuing soft economy will force more paper mills to consolidate. "I don't know," he admits. "They do need to achieve long-term efficiency now that they are dealing with an economy that makes it very difficult for them to raise prices. It does put enormous pressure on profitability. Consolidations are long-term propositions; this slowdown came upon us very, very, quickly."
Still, the decision of some paper mills to take machines off-line may impact printers later in the year, as the traditional seasonal pick-up in demand for printing begins in the third quarter, suggests R.R. Donnelley's Harris. "There's the possibility of supply shocks due to unscheduled downtime from mills as a result of soft demand patterns or insolvency," he reports.
Since paper prices and availability tend to follow the health of the economy, printers should continue to watch the economy, says Paparozzi, who is not optimistic that there will be a recovery any time soon. "The real optimistic projections are that we will see a noticeable upturn in activity in the second half of the year as help starts to arrive in the form of tax cuts and interest rate reductions. I'm not sure that I agree with that. I think the significant upturn will come closer to mid-year 2002," he predicts.
Paparozzi cites the time it will take for interest rate cuts to take effect, as well as the policy lag time that will come with a major tax cut. "We know that help is coming. The Federal Reserve and Congress realize that the economy has weakened significantly. They are coming to its aid. The big issue now is: How much stimulus do we get and when does it hit?"