Paper prices fall again

If there’s a bright side to the global recession for print catalogers, it’s that paper prices are down.

After six straight quarters of increases, paper prices fell for the first quarter of 2009. And prices for the second quarter should decrease about $2.50 per hundredweight (cwt), or $50 per ton for most grades, says Dan Walsh, vice president of catalog/publication papers at distributor Bradner Smith & Co. “I’d say that prices have declined in the past 60 days by about 5%,” he says.

Walsh expects to see another 4.5% decline in the coming months, at least for spot pricing for large tons. Not everyone has seen or will see these percentages of declines, he notes, but their paper pricing will still head down. And this follows a first-quarter drop of $2 to $3/cwt.

Printers are keeping their paper inventories lean as a result. “No one wants to carry a lot of inventory, since the price may very well be cheaper two weeks from now,” Walsh says. What’s more, lead times are extremely short for all grades.

Mills judge how busy they are by their backlogs, or how much business they have scheduled for the paper machines, Walsh explains. “For some mills now, backlogs are down to days instead of weeks, which is horrible.”

But what’s horrible for the paper mills is good for catalogers — at least for now.

Mills reducing capacity

Uncoated freesheet prices continue to fall by $10 to $15 per ton per month, says John Maine, vice president of forest industry research group RISI. And more permanent mill closures are likely to balance supply and demand.

Paper company Domtar announced its second major closure in three months. After shutting 151,000 tons of capacity in Dryden, Ontario, in November, Domtar closed its largest No. 5 paper machine — with 293,000 tons of capacity — in Plymouth, NC, in February.

Demand for coated papers has plummeted beyond expectations, Maine says. (See “Demand all but disappears,” right.) “Despite the permanent removal of 2 million tons of capacity in North America in 2007 and 2008,” he notes, “operating rates on the remaining capacity over the past two months hit an all-time record low, going back at least 30 years.”

The initial price drop was matched by cost reductions, Maine says, but costs are now stabilizing while prices keep dropping, “so mills are starting to see an erosion in per ton margins in addition to the huge volume decline.”

Coated paper prices have now dropped about $100 per-ton from their peak in April 2008.

Walsh says this price relief should continue through the end of the year. But catalogers should be thinking about 2010, or when the economy is, hopefully, set to improve.

When that happens, paper could tighten up very quickly, since so much capacity has been taken out of the market, Walsh cautions. “No one feels it now, because demand is so low, but when things do turn around, you better know where you’re going to get your paper.”

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