2012 Paper Prices Will be Stable to Higher

Dec 14, 2011 10:30 PM  By

The price of paper will be “stable to higher” in 2012, according to Steve Silver, president/CEO of FutureMark Paper Co., but given the market’s unpredictable demand, “there really isn’t a normal pattern anymore.”

If the economy rebounds a bit and producers remove paper capacity, “it’s possible that we could all see a tight market and higher prices early in 2012,” Silver says.

Bruce Jensen, vice president of sales for Transcontinental Printing, says the big trend he’s seen in recent years is that when demand softens, paper manufacturers reduce their capacity and supply accordingly.

“Gone are the days of huge paper gluts that drove down the price of paper to really low levels,” he says. “So while you will always see lower prices in a soft market, you don’t often see the fire sale prices that once occurred.”

For Jensen, the absence of ultra-low pricing means the burden falls on selling the value of print and continuing to enhance print products so that they perform at levels needed to justify the investment. “Lower prices might occur that are helpful, but they won’t likely be any marketer’s savior.”

Unless there is an unexpected surge in the global economy, Jensen believes more temporary or permanent mill shutdowns will occur in 2012.

“There are mills struggling with profitability and they, in particular, will have to focus on rationalizing their capacity and managing their operations for better financial returns,” Jensen says. “But with much of the older, inefficient equipment and mills gone from the market, capacity cuts now will involve newer equipment.”

So where does all this leave paper pricing in 2012?

“We believe prices will start to stabilize in the spring of 2012 and continue a slow upward trend as the economy gradually improves,” says Dave Goldschmidt, vice president of marketing, catalog division, for paper brokerage Strategic Paper Group.

Chris Kendziora, director of purchasing for Royle Printing, says an appropriate lead time to purchase paper next year will be three to six weeks.

Meanwhile, Silver says if paper demand is weak, it’s more likely that production capacity will go offline to sustain price levels. “And that’s exactly what seems to be happening.”

In recent months, huge capacity shutdowns were announced on both sides of the Atlantic. More than 1.3 million tons of European printing and writing paper will come out of the market before 2012 begins, and another 600,000 to 700,000 tons of annual reductions have already been announced in North America.

Some industry experts say paper production needs to decline because of the rise of e-readers and tablets, Silver adds.

“Things like the iPad are convenient scapegoats, but I don’t think they’re the main reason for the lower demand for paper we saw this past year in the retail and catalog segments,” he says.

A more likely reason: Customer doubts about the economy — not the rise of the iPad — are reducing the number of ad inserts and catalog pages, Silver says.

If the economy continues to be weak, mills will close, Silver says, because sinking prices are “just not a viable option for most paper companies. Today there’s a fantasy football atmosphere with everyone trying to figure out which mills and press rooms will survive and which ones will close.”

The lean, efficient producers — particularly the ones able to offer environmental paper options — will continue to gain on the producers whose efficiencies are simply driven by scale, Silver says.

Paper availability in 2012 should not be a concern until the beginning of the traditional busy period from August to November, when lead times are longer, Jensen says.

On the less favorable side of things, there could be more restructuring of the paper industry through mergers and capacity removal, he says. “And the rate of shift to alternative electronic media is a factor that is difficult to predict, but could potentially accelerate through the popularity of tablets and other mobile devices.”