2011 Paper Pricing Tough to Forecast

Spot prices for paper increased in 2010 by an average of about 20% for most coated groundwood grades. That’s a significant hit to mailers, says Dan Walsh, vice president of catalog/publication papers at distributor Bradner Smith & Co. “There is not a mailer out there that wasn’t impacted by some sort of increase in 2010,” he notes.

According to forest industry research group RISI, the average price range of a 60-lb. coated grade #3 paper (which is frequently used for catalog covers vs. inside pages) at press time was $48.75 per hundredweight (cwt), compared to $45.25 to $46.50 one year ago.

The price hikes were because the mills are curtailing paper supply, not a result of increased demand, Walsh says. Paper manufacturers focused on supply/demand parity during 2010, he says, “and they pretty much achieved it.” These machine shutdowns and mill closures have actually occurred over the past decade, he says, “but in 2010 the constrictions were felt and price increases ensued.”

The majority of demand increases came from a rebuilding of inventory, which had been nearly depleted in 2009 when prices were falling almost every month, Walsh notes.

The financial stability of some paper mills is a big question mark, says Dave Goldschmidt, vice president of marketing, catalog division, for paper brokerage Strategic Paper Group. “With the market already tight and inventories low, if we see further shutdowns, we can undoubtedly expect to see pricing go up again.”

Just before press time, Newton Falls Fine Paper Co. announced plans for a temporary shutdown from mid-December through mid-spring 2011. The Newton Falls, NY-based paper company said in a letter to customers that the move was “a vital step in the process to accomplish the investments and changes supporting our long-term vision for sustainability in the market.”

So what can we expect to see in 2011 in terms of paper prices? The good news, sort of, is that a price increase early in the year is unlikely. “First-quarter price increases are very rare, and I don’t expect one for 2011,” Walsh says. “In fact, we could see some discounting start to happen, because demand will be seasonally soft and inventories, by and large, have been rebuilt.”

But Walsh adds that if the mills continue to keep supply down, “any additional discounting may be short-lived. And when the economy comes back in earnest and demand does return, we could see another firm paper market.”

Conversely, Walsh says the lure of electronic marketing options for catalogers remains, which will continue to reduce overall demand for paper. “So the 2011 paper market is really a tough one to forecast.”

Goldschmidt suspects paper pricing will be “somewhat flat as we enter into 2011, but we are recommending that our customers budget for a first-half increase.”

Any time the industry has a paper price increase, Goldschmidt says, “it most certainly affects prospecting, page counts and circulation as catalogers try to stay within their budgets. Since the paper mills don’t provide advance notice, it can be extremely difficult for catalogers to plan accurately for a paper price increase.”

Catalogers were already cutting back on paper because of the general recession, on top of rising costs. According to MCM’s Outlook 2010 survey, 39% of respondents had decreased the paper weight/stock of their catalogs in the past 12 months, while another 39% had reduced catalog page count. About 25% of respondents said they had decreased the trim size of their catalogs.

ST. MARYS PAPER MILL GOING BACK ONLINE

Specialty supercalendered paper maker St. Marys Paper Corp. at press time was planning to restart its mill in Sault St. Marie, Ontario, in early in December, thanks to a loan from the Ontario government. The mill shut down in March, which was ironic, says Dan Walsh, vice president of catalog/publication papers at distributor Bradner Smith & Co., “because that was just before prices began their resurgence in 2010.”

Restarting St. Marys will restore an estimated 330,000 tons of annual groundwood consumption, and “we could see the supercalendered market loosen up somewhat,” says Dave Goldschmidt, vice president of marketing, catalog division, for paper brokerage Strategic Paper Group.

If more supply becomes available, this will make other producers of SC more price competitive, Walsh notes. “And if SC paper becomes more price competitive, that may also translate to lower prices in coated groundwood.“

But St. Marys will still have to face a challenge it can’t control: the exchange rate. “The strong Canadian dollar has made it very difficult to be competitive for Canadian paper producers for anything coming across the border into the U.S.,” Walsh says. — JT

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