Live from Paper Week: Demand and Prices Take a Hike

New York—The good news is that the demand for paper is increasing, which could point to faint signs of an improving economy. The bad news is that higher demand means higher paper prices.

At the American Forest & Paper Association’s Paper Week conference, held here from March 9-March 12, it was revealed that the forecast for North American printing and writing papers shows increased demand, managed capacity, and overall growth in all of the catalog grades. This will likely translate to steady price hikes through 2004.

Supercalendered (SC) papers are seeing the biggest rebound due in part to many publishers downgrading, said speaker John Maine, vice president of printing and writing papers for paper research firm RISI. Also, the proliferation of coupon printing in a recessionary economy tends to peak demand for SC stock, he noted. Demand for other coated grades is picking up as well, Maine said. “Both woodfree (freesheet) and mechanical (groundwood) saw a 15% recovery as of December 2002,” returning the grades close to pre-recession levels. This is not an aberration or a random spike, Maine said, but the beginning of a true recovery for the paper market.

Coated demand may also be influenced by its own recent pricing history. The all-time low prices drove some uncoated paper users to the higher quality coated grades, but as prices rise, Maine predicts “you will see many of these new users switch back to uncoated sheets.”

But don’t expect to see the wild price increases of the ’90s this time around. Maine believes that any excess supply will be absorbed readily for two reasons. First, each paper segment has only three to four major players and not one with a large marketshare. For example, Stora Enso is the biggest North American producer of coated groundwood (CGW), and has 20% of the market. Second, the rampant consolidation of printing companies over the past six years has created efficiencies that will contain costs and be reflected in pricing.

Both demand and capacity are expected to tighten through 2004, said Maine, who expects demand for coated grades to rise 4% in both 2003 and 2004 while capacity will increase 0.5%. The caveat, of course, is a pending war with Iraq. Maine prefaced his forecast by saying that RISI has factored in a war that will last a few weeks. “A protracted war will negate the forecast” and negatively affect the industry, he says.

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