Paper prices continue to climb

If you thought 2008 might bring relief from rising paper prices, think again: Industry watchers say reduced demand, several mill closures, along with rising energy and manufacturing costs, have rendered paper markets extremely tight.

Blake Hutchison, director of purchasing for Menomonee Falls, WI-based printer Arandell Corp., says most, if not all coated mills have announced 5% to 7% price increases effective Jan. 1. “So right out of the gate, prices are going to be higher,” he says.

While mills rebuild their inventories during the typically slower first quarter, manufacturers are going to be hard pressed to make all the paper for their booked orders,” Hutchison says. “They are going to be less likely to build up inventory than the free sheet producers.”

Dave Goldschmidt, vice president of marketing, catalog division for Irvine, CA-based paper brokerage Strategic Paper Group, says European mills like M-real, UPM, and Stora are still reducing capacity. “There is very little groundwood inventory to speak of,” he says. “Lead times are getting longer, especially for groundwood.”

Michael Wade, vice president of business development at Deerfield, IL-based Wade Paper Corp., says the price increases for coated paper are largely driven by the significant reduction in capacity. “Keep in mind that even with the recent price increases, paper mills are still losing money.”

Markets are “very tight” right now, says John Maine, vice president of Bedford, MA-based forest industry research group RISI. “Mills are booked with seven weeks of backlogs right now,” he says. “Europeans don’t want to ship to the U.S. because of the strong Euro, while capacity closures in North America have limited domestic supply.”

Prices are going up another $60 per ton in January, the third increase since June, Maine notes, “and we can already see the likelihood of another increase in 2008.”

What does this all mean to paper buyers? “Paper buyers are increasingly concerned over paper availability in 2008, and less concerned about negotiating for price,” Maine says. “The real test will come in January and February, a seasonally weak period for demand.”

At the moment, Maine says, “nobody is canceling any orders — even if they don’t need the paper, which could lead to some inventory building in January and February. If the market doesn’t open up by February, it won’t open up at all in 2008 — and paper availability will be an issue all year. We expect LWC prices to rise 14%-17% year-over-year in 2008, and the risk is that they might rise even more than this.”

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