Q3 Paper Outlook — Beaten to a Pulp

BY MARK SMITH

For better or worse, the fortunes of printers and paper producers are inextricably linked. If one sees this as an adversarial relationship, then the paper producers clearly are in a defensive position. Printing papers have been on a downward trend for some time and now are at or near historically low prices. Even the mega-deal consolidations among the major producers have yet to have any obvious impact on the level of competition in the marketplace.

Lower paper prices are not necessarily good news for the printing industry, so say even those responsible for buying large quantities of it. "We all need the paper companies to be healthier than they are right now," asserts Dan O'Brien, senior vice president of paper operations for Quebecor World in Greenwich, CT. "It's a very capital-intensive business, so paper producers need better market conditions to support reinvesting in their operations and capabilities. There are signs indicating that the market has bottomed out."

O'Brien notes that prices continued to decline even as paper producers took steps—chiefly mergers—to improve their ability to manage supply in relationship to demand. "Actually, most of the papermaking assets are still there, they're just controlled by fewer suppliers," he says.

Independent of this industry consolidation, Quebecor World made a decision to narrow the number of paper suppliers it uses on a regular basis, the company exec reveals.

"We decided to invest in the suppliers we want to do business with long-term and who we think are willing to work with us in a way that is in everybody's best interest. That's become our standard procedure regardless of turns in the market, but it's especially important for us to invest in those companies during the tough times."

Marketing Relationships

Paper expertise and effective relationships with suppliers can be translated into a marketing tool and opportunity, O'Brien says. A case in point is the long-term relationship Quebecor World recently entered into with Sears, Roebuck and Co. for the printer to furnish all the roll stock paper used to produce the retailer's newspaper inserts.