Coated Paper Case Ruling and the Future of Print

By now I’m sure you have all read about last Friday’s ITC ruling in the coated paper case, and the fact that APP (Asia Pulp & Paper) will appeal. Already, the blogosphere is crowded with comments pro and con.

Let me try to add some perspective.

We want free trade, but we want jobs. We don’t want jobs shipped offshore, but we want our cheap imported products from China or Costa Rica or wherever. We can’t have it both ways. What some of us seem to want is the cheap imported goods, as long as our jobs are secure. We buy from Wal-Mart and then complain that our manufacturing base is gone.

Forget for a moment what’s best for you or for me—what’s best for our country? Unlimited free trade, with no limits on dumping and foreign subsidies as we lose jobs overseas? Or extreme protectionism? I think most of us would agree that we need to be in between somewhere. And we can all disagree on “in between” we need to be.

As for this case, printers and merchants who are benefiting from low-priced paper imports are against the duties; those who have to compete with them are in favor of the duties. It’s not ideology; it’s business.

It has been argued that the paper industry is hypocritical to be complaining about subsidies when it has gotten billions in black liquor tax credits. This is a fair criticism. I think the black liquor credits represented a failure of our government to do its homework and look at the full picture. But don’t blame the mills—who among us would voluntarily turn down a legal tax deduction? And, more to the point, these credits were temporary and they are no longer in place.

Let’s try to clarify a few things. The U.S. industry is not losing market share because it has not invested in technology. Domestic suppliers are losing share to foreign mills with lower labor costs, lower environmental costs, artificially devalued currency in China, and now, according to the findings in this case, illegal subsidies. Would you invest in new papermaking technology in a declining market when faced with these realities? I wouldn’t. Frankly I’d have an exit strategy.

Now let’s look at the effect on paper prices and the impact on print. Recognize that duties were being collected and put in escrow for several months, and so a lot of the impact on paper prices is already in the market. Still, coated prices are not much higher than uncoated prices. The differential is well below normal.

There are still low priced imports from Europe, and some North American mills are still very aggressive. The market is global, so inexpensive Asian paper will go somewhere else and whoever loses that business will look elsewhere, possibly here, as an outlet for extra tonnage. That will put downward pressure on prices, or mitigate any upward pressure.

Still, prices are likely to rise. Paper prices were flat from 1980 to 2005. Yes, there were some sharp ups and downs, but the trendline was flat. Since 2005, following a decade of negative returns, the U.S. paper industry has seen a lot of consolidation and rationalization of capacity. The mills have learned that demand is trending down and they cannot wait for demand to return to “normal.” Supply and demand are balanced, and cost increases can be passed through.

The argument has been made that if paper prices rise, print prices will rise, and this will hasten the decline of print. This concept is called “elasticity of demand.”

Clearly, there is some relationship between print prices and the demand for print, but it is not clear that there is a direct relationship. Print is losing ground to various other forms of communication and the cost of a podcast, e-mail blast or Web page is not readily comparable to the cost of a printed piece. I explored this in more depth in Printing Impressions’ May 2010 edition (“Paper Case Cuts Both Ways”).

Unfortunately, print is more fragmented than paper, and print has not seen the same degree of rationalization as paper. Printers struggle to pass paper increases along. Still, a few succeed, and some are reinventing themselves with digital print and value added services. But we can’t rely on the Chinese government or the U.S. paper industry to subsidize the printing industry.