the annual paper forecast: cautious Optimism

Oct 01, 1999 9:30 PM  By

Though life has been good of late for catalog paper buyers, with ample supply and stable pricing, few are planning huge increases in paper consumption.

What with the strong economy, a relatively minor postal rate increase in January, and the continuance of several years of low paper prices, you might expect catalogers to increase their catalog circulation and page count over the next 12 months. But if their plans for paper consumption reflect their overall business outlook, catalogers are far less optimistic this year than they were last year.

Among respondents to the most recent quarterly GAPTRAC survey of more than 300 paper buyers, conducted in July and August by Jaakko PUyry Consulting’s Strategic Futures division, just 51% of catalogers expect to use more paper over the next 12 months than they had during the previous 12 months, compared to 67% last year. Among consumer catalogers, 50% plan to increase paper consumption vs. 77% last year, while 33% of this year’s cataloger/retailer respondents say they’ll use more paper in the next year, compared to 50% in 1998.

On the other hand, 72% of the business-to-business respondents say they plan to consume more paper over the next 12 months, up from 63% last year. Credit the Internet for much of that development: The Web is bringing in business customers who did not traditionally shop by mail order, causing some b-to-b mailers to increase marketing budgets for both print and Web catalogs.

Among other survey findings:

- More than half (54%) of the consumer catalogers expect to increase their print runs, but only 27% of the b-to-b respondents intend to.

- None of the business-to-business respondents expect to make any changes in trim size, nor do 64% of the consumer respondents. But 80% of the cataloger/retailers do plan to change their trim size, most likely to try to stand out from the crowd.

- Roughly one-fifth of the consumer catalog respondents intend to change page counts this year, compared with 45% of the b-to-b respondents and 60% of the cataloger/retailer respondents. Among those anticipating changes, only 14% of consumer catalogers, 40% of retail catalogers, and 36% of the b-to-bers say they will increase page counts.

As for paper consumption by the industry as a whole, catalogers used approximately 3.3 million short tons (ST) of paper in 1998, up 6% from 1997. By comparison, consumption in 1997 had increased 9% from 1996. Of course, we must keep in mind that in 1996 catalogers cut back on paper purchases to use up inventories they’d stockpiled as a result of the paper price hikes of 1995, so 1997 was actually a “recovery” year.

By comparison, catalogers are expected to consume roughly 3.35 million ST of paper through the end of the year, an increase of less than 2% from last year. And we’re projecting a mere 2.5% increase in catalog paper usage between 1998 and 2000 – a modest growth level given the relatively low paper costs and postal rates of the past year. Despite the strong economy, this has been a cautious year from the start, with many concerned about issues ranging from the scandal in the White House and the war in Bosnia to the ongoing financial crisis in Asia and general stock market fluctuations.

Another thing to keep in mind is that the sample of catalog paper buyers surveyed includes cataloger/retailers that primarily print inserts and traffic builders rather than mail order catalogs. Because these pieces are printed in high volumes on gravure presses, paper buyers choose lower-quality stock such as supercalendered or groundwood. That explains the discrepancies in Jaakko PUyry’s paper use findings and those of Catalog Age’s Benchmark 1999 on Production (page 57).

Paper grade usage

Coated groundwood continues to be the paper grade of choice among catalogers, accounting for 57% of the total tonnage used this year. Consumption is expected to have increased more than 22,000 ST between 1998 and 1999, to 1.9 million ST. But use is expected to jump more than 52,000 ST between 1999 and 2000, and an additional 38,000 ST between 2000 and 2001. While the more expensive coated freesheet has traditionally been used for catalog covers (and for the body stock of high-end catalogs), we expect increasing cost concerns to cause more mailers to use the same coated groundwood stock to print the covers as well as the inside pages.

As in the past, catalogers – along with other industries – will continue to rely on imports to fill the gap between U.S. capacities and demand for coated groundwood papers. Offshore sources are expected to supply 9% of the total1999 U.S. coated groundwood demand, while Canadian imports will supply 14%. This dependency will continue unless more capacity is added in the U.S. or catalogers shift more tonnage to substitute grades, such as high-quality supercalendered papers and film-coated groundwoods, which have a lighter coating than regular coated groundwood papers.

Use of coated freesheet – the second most important paper grade for catalog production, and accounting for 19% of paper used – is expected to have increased some 22,500 ST, or 3.7%, between 1998 and 1999, to 624,000 ST in all. The increase between this year and the next is predicted to be an even more modest 18,000 ST. We forecast coated freesheet consumption to rise another 23,000 ST between 2000 and 2001, to 665,000 ST in 2001.

The U.S. is largely self-sufficient in terms of coated freesheet supplies. U.S. production capacities grew only 21,000 ST between 1998 and 1999 – a humble increase compared to the 153,000 ST increase between 1998 and 1997. Another 54,000 ST will be added between 1999 and 2000. These increases are lower than those anticipated last year, as the paper industry tries to adjust capacity increases to be more in line with demand trends and to reduce wide price swings. But imports are still expected to account for 13% of U.S. usage over the next few years, based on the attractiveness, price, and marketing strategies of some European and Asian specialized coated freesheet grades.

Accounting for 14% of all paper used by catalogers, supercalendered (SC) papers are the third most popular paper grade among catalogers, which use it largely for long-run gravure-printed catalog pieces, especially those with high page counts. The appeal of the higher-quality SC-B, SC-A, and SC-A+ papers is obvious: While they are cheaper than coated groundwood, many catalogers don’t consider their appearance to be significantly inferior. Consumption of supercalendered papers is expected to reach more than 472,000 ST in 1999 – an increase of 35,000 ST, or 8%, over 1998 levels. Moreover, we expect use of this grade to swell another 24,000 ST by 2000 and then a more modest 16,000 in 2001, to reach 513,000 ST.

North American SC producers such as Madison International and Consolidated Paper’s Lake Superior, MI, mill have made investments in recent years to improve the quality of their papers. Stora’s new SC paper machine in Nova Scotia, which produces both SC-A and SC-A+, was a particularly welcome addition to North America’s capacity. Imports from Canada and abroad accounted for almost 74% of the total 1998 U.S. demand for SC papers and an estimated 78% of total demand this year. Canada alone accounted for at least 56% of all SC papers used in the U.S. this year, compared to 46% in 1998. Offshore imports, which amounted to about 619,000 ST in 1998, shrank an estimated 97,000 ST in 1999 – decreasing from 28% of total U.S. demand last year to 22% of total demand this year. These imports will decrease further over the next few years to reach 17% of the total SC papers used in the U.S. in 2000 and 2001.

Uncoated groundwood papers (excluding SC papers) are the fourth most popular paper grade, accounting for 9% of the paper used for catalogs. For 1999, consumption of these papers was expected to reach about 309,000 ST – only 4,200 ST more than in 1998. Use is expected to increase only 9,000 ST next year and another 15,000 ST in 2001 to reach 322,500 ST. As a lower-quality printing paper, with limited use for four-color reproduction, this grade is under increasing competition from the SC grades. But its low cost will continue to attract bargain shoppers.

As with SC papers, Canada supplies a great deal of the U.S. demand for uncoated groundwoods – 48% this year. Since U.S. capacity to make this grade is expected to decline slightly, the U.S. will continue to depend heavily on foreign – especially Canadian – sources.

Uncoated freesheet papers account for just 0.5% of the total paper used for catalog production. For 1999, consumption of this grade for catalogs is estimated to amount to just under 17,000 ST, down slightly from 1998. We expect uncoated freesheet demand to decline in 2000 and 2001 before increasing 2% in 2002. Again, because of the limited four-color reproduction quality of these papers, their use is limited to that of a body stock for smaller catalogs or in special sections such as order forms. But more catalogers are printing ordering information on the same inside catalog paper stock rather than on a separate order form, since a growing number of orders now come in over the phone or via the Internet rather than through the mail.

Unlike with the SC papers and uncoated groundwoods, the U.S. is fairly self-sufficient for supplies of uncoated freesheet. In 1999, U.S. demand is expected to have equaled 98% of the total U.S. capacity. But enormous increases in capacity for uncoated freesheet are being added in Asia, so U.S. paper buyers will see more Asian and South American uncoated freesheet papers this year.

At 0.5%, newsprint ranks down there with uncoated freesheet in terms of popularity with catalogers. We estimate that only 17,000 ST (or 15,200 metric tons, since newsprint is the only grade typically quoted in metric tons rather than short tons) of newsprint will be used for catalog production in 1999, up 2% from 1998. Over the next two years, newsprint demand is likely to decline slightly, because its low print quality limits its use to lower-quality catalogs or to special sale sections.

Foreign sources supply 52% of the demand for newsprint, with Canada accounting for 89% of total newsprint imports. But imports from Asia are starting to increase, so Canada may represent 88% of total newsprint imports by 2001. It’s not likely any new capacity will be added in North America, since the long-term prognosis is a declining market for this grade.