Finally a Break on Paper Prices

After A Tumultuous Year in the paper industry — marked by quarterly price increases, rising energy and manufacturing costs, as well as several mill closures and scheduled downtime — 2009 looks like it will begin with a reprieve. The cost of paper will actually drop — at least $2 to $3 per hundredweight (cwt), or $40 to $60 per ton — for most grades.

“Prices started declining in October and November,” says Dave Goldschmidt, vice president of marketing, catalog division for paper brokerage Strategic Paper Group.

Freesheet

Freesheet has held better, Goldschmidt says, but the October freesheet increase of $3 was not implemented in most cases. Unlike?quarters with an increase, mills don’t issue press releases when paper prices decline. That’s why learning how much prices declined depends on who you ask and who those people buy paper from.

John Maine, vice president of forest industry research group RISI, says the top-three producers of uncoated freesheet — International Paper, Domtar and Boise — opted to shut more than 500,000 tons of capacity to balance the uncoated freesheet market in 2009 and prevent a price collapse.

Coated papers

Mill and printer inventories of coated papers were still high in October, Maine explains, “but they will likely drop significantly in both November and December as end-users cancel orders at the end of the year in hopes of re-ordering at lower prices in January, while mills take extended holiday shuts to remove excess mill inventory.”

What’s more, the demand side of the market remains abysmal. “U.S. shipments plummeted 15% for coated freesheet and 19% for coated mechanical in October, with similarly severe declines expected for November and December,” Maine says. “The only silver lining [for the mills] is that some of this decline is now attributable to inventory reductions.”

Demand to stay down

Blake Hutchison, director of purchasing for catalog printer Arandell Corp., says even though mills will try to take downtime to reduce supply to keep the price levels high, pricing will still go down. “As volumes drop, the need to keep so much inventory on the floor will decrease,” he says.

“Supply is not in line yet with demand, as demand has dropped much faster than the mills can reduce the supply,” Hutchisons says. “As a result, pricing is all over the map.”

Dan Walsh, vice president of catalog/publication papers at distributor Bradner Smith & Co., predicts prices will go even lower in 2009. Fuel surcharges might be reduced at first and then eliminated by the end of the first quarter, he adds. And lead times have decreased.

Still, the mills are not making money, Walsh says, so they have no reason to keep dropping pricing. “The other big question is, will all of the mills be able to survive? If not, the market could tighten up quickly if one of the larger ones falls.”

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