Paper mills say, Hike

At least two major North American paper companies, International Paper (IP) and Fraser Papers, have announced a $2.50 per hundredweight (cwt), or $50 per ton, price increase on coated groundwood #5 products beginning July 1.

In addition, IP’s general manager, Michael A. Weinhold, said in a letter to customers that the second-quarter 5% increase on coated groundwood #4 would remain in effect, and in mid-June the company announced a $2/cwt ($40/ton) increase on all coated freesheet. And Stora Enso North America announced a $2/cwt increase on its Productolith, LumiArt, and Orion coated freesheets and all private-label web offset papers.

As of mid-June, Rick Dethloff, director of purchasing for Menomonee Falls, WI-based printer Arandell Corp., was expecting to see other mills announce price increases for the third quarter as well. Looking further ahead, David Goldschmidt, vice president of marketing, catalog division for Newport, CA-based paper brokerage Strategic Paper Group, says he won’t be surprised to see additional paper price hikes later in the year, “especially with the rising fuel and energy costs, and the busy season approaching.” And though some mills have dropped their fuel and energy surcharges, if gas and energy prices continue to rise, he adds, “we could certainly see the mills make a bigger push for this again or announce another increase.”

John Maine, vice president of the Bedford, MA-based forest industry research group RISI, says that paper markets are “generally going to be quite tight in the third quarter due to seasonally strong demand, capacity closures in Canada, and capacity closures in Europe.” He says that facilities with 800,000 tons of coated mechanical capacity and 250,000 tons of coated freesheet capacity are scheduled for closure in Europe, primarily during the third quarter.

Indeed, paper manufacturers are suffering the same economic squeeze as other industries. says Michael Wade, director of sales and marketing at Deerfield, IL-based distributor Wade Paper Corp. “They have been dealing with soaring energy prices and have had to cut back on costs considerably,” he says. “Canadian mills have the additional difficulty of dealing with the weak U.S. dollar, and if there is no change you will continue to see mill closures.”

Several recent mill closures have already reduced paper supply and tightened the market (see “Coated freesheet up another 5%” in the April issue), but there is one bit of good news: UPM-Kymmene Group’s mill in Miramichi, New Brunswick, which shut down for three months beginning Feb. 1, has reopened. “The restart of the Miramichi mill in May helped increase paper availability,” Maine says, “but this is most likely going to be offset by a reduction in supply from the European mills.” The Miramichi mill has a capacity of about 450,000 tons of coated groundwood #4 and #5.

Goldschmidt says many mills have built up their inventories, but “this will go down as we go through the fall/holiday catalog season.” Similarly, lead times are fairly short — about two to three weeks, according to Arandell’s Dethloff — but they could double in the months ahead due to an “increase in seasonal demand and recent paper industry capacity reductions.”

If seasonal demand remains true to form, Dethloff says, “it could be a busy last half of the year for printers and paper manufacturers. The first quarter of this year saw healthy orders, while the second quarter experienced the seasonal slowdown in both catalog and commercial printing orders.” Indeed, Wade says paper manufacturers are “very optimistic” that demand will pick up considerably.

Not going postal

Despite the postal increase implemented this past January, Dethloff says he has seen no evidence of circulation cutbacks among catalogers. Quite the contrary: He says there’s been an increased demand for catalogs, “which is good for our industry.”

Strategic Paper Group’s Goldschmidt agrees: “We did not notice much of an impact at all with the onset of the most recent postal increase. We believe it was because mailers were bracing for a double-digit increase and what actually was implemented was much lower and less dramatic. We have actually seen many of our catalog clients increase paper orders for the second half of 2006.”

Next year’s expected postage increase could suppress demand, however. “The rate increase could be about 8% in first class, and it might be higher, as much as 12%, for key products such as magazines,” says Maine. He expects the trend toward lower page counts and lower basis weights to gain momentum, “but catalog circulation should remain fairly strong.”

IP sells coated, SC divisions

After months of rumors, Stamford, CT-based International Paper (IP) on June 5 finally announced that it would sell its coated paper and supercalendered (SC) paper divisions to CMP Holdings, an affiliate of New York-based private investment firm Apollo Management, for $1.4 billion. The coated and SC papers business includes four mills, in Jay and Bucksport, ME; Quinnesec, MI; and Sartell, MN. The transaction is expected to close in midsummer.

Last year the two divisions generated $1.6 billion in sales and produced about 2 million tons of coated freesheet and coated groundwood papers for the magazine, catalog, and retail insert markets.

Before the sale, David Goldschmidt, vice president of marketing, catalog division for Newport, CA-based paper brokerage Strategic Paper Group, and Michael Wade, director of sales and marketing at Deerfield, IL-based distributor Wade Paper Corp., had speculated that a sale on the part of International Paper could lead to more mill closures. But since an investment firm rather than a rival manufacturer bought the two divisions, Wade says mailers should breathe a sigh of relief. Eventually, there will be a new company name and identity, he continues, “but I don’t think anyone would expect any major product changes anytime soon.”

Goldschmidt doesn’t expect end users to see much change either. “I also believe this is a good thing for the catalogers, as opposed to having a merger or consolidation with another paper manufacturer, because from a competitive pricing standpoint it did not eliminate one of the choices or options in the marketplace,” he says.

Chris Bradley, president of Portland, ME-based bedding merchant Cuddledown, agrees that catalogers shouldn’t worry about IP’s sale: “My opinion is that when someone pays more than $1 billion for a business, they will probably work hard to keep the existing customers happy, so I would expect it to be business as usual.”

Partner Content

Hincapie Sportswear Finds Omnichannel Success in the Cloud - Netsuite
For more and more companies, a cloud-based unified data solution is the way to make this happen. Custom cycling apparel maker Hincapie Sportswear has leveraged this capability to gain greater visibility into revenue streams, turning opportunities into sales more quickly while gaining overall operating efficiency. Download this ecommerce special report from Multichannel Merchant to more.
The Gift of Wow: Preparing your store for the holiday season - Netsuite
Being prepared for the holiday rush used to mean stocking shelves and making sure your associates were ready for the long hours. But the digital revolution has changed everything, most importantly, customer expectations. Retailers with a physical store presence should be asking themselves—what am I doing to wow the customer?
3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.