A present from Asia

Dec 01, 1998 10:30 PM  By

At least one good thing has come from the Asian economic crisis: Paper prices have gone down. List prices of coated groundwood, for instance, dropped an average of $50 per short ton between August and October.

Even better, industry observers aren’t projecting any price increases for next year. “We’ve been told that the pricing set in January should be the same throughout 1999, especially if the Asian economy remains shaky,” says Neil Schuler, advertising production director at multititle food and gift cataloger Bear Creek Corp.

“It’s a strong buyer’s market right now,” says Vern Bush, print services manager for office supplies cataloger Quill, which has already reaped the benefits. In October, Quill decided to polybag additional catalogs with its semiannual book scheduled to drop in early December. To accomplish this, the Lincolnshire, IL-based cataloger needed at least three more truckloads of paper. Typically, getting that much paper on such short notice has almost been impossible, Bush says, especially around the holiday season. But this time Quill had no problems getting the paper it needed to print the extra books. “There’splenty of inventory around,” Bush says.

And because of the abundant inventories, not only have list prices fallen 2%-4% across all paper grades, but discounts have also risen. For #5 40-lb. web offset grade, which carries a list price of $1,240-$1,260 per short ton (depending on the brand), discounts had averaged $360 per short ton in August, making a typical transaction price $920 per short ton, according to industry newsletter Pulp & Paper Week. But as of early November, discounts for this grade were $410-$420 per short ton, bringing down transaction prices to $820-$840 per short ton.

Asia’s leftovers The falling domestic paper prices are a direct result of an increase in imports, particularly from Germany, Finland, and Canada, which built facilities to meet the anticipated demand of Asian countries. But as the Asian economies tumbled, so did their demand for paper, forcing suppliers to lower prices and import excess inventory to North America. According to the American Forest and Paper Association, imports of these lower-priced coated groundwoods have increased 20%; Wisconsin Rapids, WI-based paper mill Consolidated Papers says imports have increased 27%.

And just as the overseas mills saw the Asian market dry up, North American mills that export paper to Asia have also been suffering from inventory surpluses. U.S. mill inventories in August were up nearly 22% from August 1997, says Pulp & Paper Week; coated groundwood inventory increased 40% from August a year ago, and coated freesheet was up 21%. In fact, a number of domestic mills, including Consolidated, Champion, and International Paper, had to briefly shut down their machines, halting production to keep inventory in check.

Meanwhile, mailers are happy to take advantage of the paper mills’ travails. “The imports from the Europeans have really had a positive effect on domestic paper pricing,” Bear Creek’s Schuler says. While Bear Creek, whose titles include Harry and David, and Jackson & Perkins, doesn’t buy paper from overseas mills, “we do look at foreign prices to help us negotiate pricing with domestic suppliers.”

Before the catalogs-even before the loose-sheet mailings-Blair started with one product: raincoats. Launched 88 years ago as New Process (the name changed to Blair Corp. in 1989), the company was born soon after John L. Blair, a man of penetrating brow and slick, movie-star hair, figured he could reach the underserved funerary market by selling black raincoats to undertakers by direct mail fliers. With a 4% response to his first 10,000-piece mailing, Blair was in business.

After switching to general apparel and home furnishings in the 1920s, New Process didn’t tinker much with the formula. It stayed with letter mailings, which proved inexpensive to produce, mail, and later, personalize, and targeted lower- to mid-income shoppers-the type of customer who would, if convenient, buy at a Sears or a J.C. Penney. Its straightforward, value-oriented offers attracted loyal customers; its seven-day free trial (a mail-order first in the 1920s) earned prospects. The formula worked like a charm-at least until the 1990s.-DC