The song remains the same in the catalog paper market: Low supply plus high demand equals price hikes. But several factors, including mill closures, strikes, and the feeble U.S. dollar, could make a bad situation even worse. Catalogers should expect two or three increases of around $2 per hundredweight (cwt) beginning in midsummer, as companies gear up for next year’s holiday selling period, says Jim Padgitt, president of Mount Pleasant, SC-based catalog consultancy Direct Marketing Insights. Padgitt says that by the end of 2005, the coated grades could experience a total increase of at least $6/cwt from where the market was at the end of 2004. “Demand is still very strong for catalog grade papers, so it’s a prime situation for high prices being maintained and jockeyed up as far as paper manufacturers think they can do it,” he says.
Michael Wade, director of marketing and sales service for Deerfield, IL-based paper brokerage Wade Paper Co., agrees that the bleeding is not yet over when it comes to price hikes — for both coated and uncoated grades. “I would say expect increases of anywhere from $3/cwt to $9/cwt, but the midpoint [of that projection] is most likely,” he says. As evidence of the tighter paper market, lead times necessary for catalogers to secure their paper have doubled during the past year. In the first quarter of 2005, for instance, Wade says that a 60-lb. coated #3 sheet will require a lead time of six weeks to secure; at the end of 2003, before pricing began to spike, that same paper could be delivered within two weeks of ordering.
Kirkland, WA-based Altrec.com Outdoors, which prints its 32-page slim-jim catalog on a 70-lb. #3 gloss sheet, has so far had no problem securing its paper due the relatively small size of its print runs, which amount to only 100,000 copies per edition. But it has inquired with its printer, Eugene, OR-based Northwest Web, about securing paper ahead of time, says creative director Blaine Donnelson. “I’ve told them to reserve it for us even though our print runs are small, and they usually have it available on their floor,” he says.
More catalogs, less paper Greater-than-expected catalog circulation increases contributed to the tight paper market. A possible strike at Helsinki-based UPM-Kymmene Group’s lightweight coated paper mill in Miramichi, Canada, could make the market even tighter. As of mid-December negotiations were under way between UPM and the Communications, Energy, and Paperworkers Union of Canada. Four hundred workers are threatening to strike if UPM does not change its plans to close the site’s bleached softwood kraft pulp mill on Jan. 31. John Maine, vice president of Bedford, MA-based forest industry research group RISI, says the closure of the mill, which represents 8% of North American supply, would mean the loss of 500,000 tons of capacity.
Then there’s the weak dollar, which makes paper companies less willing to import paper from Europe to make up for domestic shortfalls. “If you see the dollar go up,” Wade says, “you’ll see imports come back and pricing go down.” But the dollar isn’t expected to gain in strength against the euro anytime soon. Nor is demand expected to decline. In fact, Maine says catalogers are expected to increase mailings another 2%-3% in 2005 in advance of the sizable rise in postal rates expected in 2006.
Right now it looks like paper prices won’t stop increasing until postal rates go up. “With no new capacity coming on line in either Europe or North America, the only way the supply shortage can be alleviated is through weaker demand,” Maine explains. “This weaker demand will surely arrive in 2006, when the combination of higher costs for postage and paper prove to be too much for catalog publishers to absorb without a reduction in paper usage.”