So much for a reprieve in paper prices. It looks as though 2008 will end much like it began: The fourth quarter marks the sixth straight price rise for paper. Most of the major mills have announced price increases for many paper grades — $3 per hundredweight (cwt) or $60 per ton — effective Oct. 1.
Dan Walsh, vice president of catalog/publication papers at distributor Bradner Smith & Co., says New Page’s decision to permanently close the Kimberly, WI-based mill at the end of August takes “a lot of tonnage out of the market.” New Page Corp. is the top producer of coated freesheet paper in North America; the Kimberly mill annually produces 500,000 tons of coated freesheet paper.
The Kimberly mill closure follows a pattern of shutdowns due to an ongoing trend of reduced demand, Walsh says. Catalogers and publishers may be upset with the numerous price increases, “but the fact is, with the sky-rocketing prices for chemicals, energy and fuel, the mills are barely making it — even with the increases,” he notes.
With every closure or temporary machine shutdown, Walsh says, paper mills hope to “limit supply and, hopefully, keep prices up. But every time they announce an increase, publishers, advertisers and catalogers respond by by reducing page counts and basis weights, going down in quality, limiting prospecting, or going more to the Web.
Indeed, John Maine, vice president of forest industry research group RISI, speculates that the announced price increases “will be more difficult to implement in the fourth quarter relative to the increases of the third quarter because of end-user revolt. End-users are losing money in some sectors and will do whatever is necessary to hold down paper costs.”
The mills will not continue to run at a loss, notes Dave Goldschmidt, vice president of marketing, catalog division for paper brokerage Strategic Paper Group. “So unless we see a significant and sustained reduction in energy and chemical costs or an economic turnaround that increases demand, we expect more of the same, which means further shutdowns and potentially more mill price increase announcements.”
|Pain in the assessment|
Some paper mills have begun assessing shipment charges for the first time, Walsh says, due to the weak economy and price of oil. Effective Sept. 1, full truckloads of paper shipped from Verso Paper to Wisconsin will incur a $0.15/cwt upcharge — that’s for loads of at least 44,000 lbs. of paper. Truckloads of less than 44,000 lbs. would incur an upcharge of $0.60/cwt.
So if a company is paying $50/cwt for paper, it will now pay at least $50.15/cwt with Verso Paper and other companies that plan shipment charges.
“In the past, anything going full-truck (which is about 44,000 lbs.) carried no upcharge, which was pretty much a given for any mill,” Walsh says. “Now, mills such as Verso are beginning to announce shipment upcharges even on full trucks. Orders less than a truckload, commonly referred to as LTL, carry a steeper upcharge.”