Live from Paper Week: Demand to Slacken in 2005

New York—High paper prices and increasing postage costs combined with a slowing economy may curb demand for paper late this year and into 2006, said John Maine, vice president of Bedford, MA-based forest industry research group RISI, during a seminar on Monday at the American Forest & Paper Association’s Annual Paper Week.

“The very strong economic growth of the past two years is about to come to an end,” Maine said. “Low interest rates, massive federal spending, tax cuts, and a weak dollar have fueled the economy but are now reversing.” The gross domestic product will experience “below-trend growth in the second half of 2005,” he predicted. “The economy is still too strong to allow a recession to come into play, but economic growth will be cut in half from 2004.”

Demand for coated mechanical paper, including grades #1, #2, and #3, will mirror the slowing economy. While demand was up 15% in 2003-2004, with catalog paper purchases up 8% last, growth will stagnate in 2005-2007.

The strike at Helsinki-based UPM-Kymmene Group’s lightweight-coated-paper mill in Miramichi, Canada, which has taken 8% out of the North American supply of coated mechanical papers, will likely last another six to nine months, Maine said. Assuming there is a nine-month strike, the supply shortage of coated paper will be about 350,000 tons, he said. The result of this shortage will be an increase of imported papers from Europe and a shift of supply to UPM’s Rauma paper mill in Finland.

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