Watch for Falling Paper Prices

Finally, a bit of good news: Prices for the most popular grades of paper among catalogers — supercalendered-A (SC-A), coated groundwood, and coated freesheet — have dropped at least 5% during the past year. And for the rest of the year, they’re expected to remain stable, if not drop even lower.

According to trade magazine Pulp & Paper Week, the cost of #3, 60-lb. coated freesheet fell from about $955 a ton in April 2000 to $930 in January 2001 to $840 a ton this past April. That’s a drop of $115 in one year, or 12%. And Donald D. Cooke, vice president of direct sales for Westport, CT-based paper merchant Midland Paper, says that the price per hundredweight of SC-A is down 5% from a year ago, while prices for coated groundwood have fallen about 10% since last fall.

“We’ve seen steady pricing to prices that are dropping off a bit,” says Michelle Rick, manager of marketing programs for Charlottesville, VA-based electronics cataloger Crutchfield, which mails its 148-page core book three times a year. For instance, “Freesheet is coming down about 3% from this time last year.”

For the cover of its core catalog, Crutchfield uses #5, 80-lb. groundwood freesheet; for the inside pages, #5, 30-lb. groundwood. Crutchfield’s 52-page supplement catalog, which mails four times a year, uses #5, 38-lb. groundwood for the inside pages and 60-lb. freesheet for the cover. The cataloger buys its paper directly from the mill because “we think we get slightly better pricing that way,” Rick says. All told, it mails about 35 million catalogs a year.

“Paper prices have been sliding downward since the fourth quarter of 2000,” says Jim Coogan, president of Sante Fe, NM-based consultancy Catalog Marketing Economics, which buys paper for five catalogers. Coogan has seen the price of #5 coated groundwood come down 5%-10% during the time. And Carol Wisely, marketing manager of food cataloger Harrington’s of Vermont, which uses #5, 45-lb. coated groundwood for the inside pages, has noticed a 5% decrease in paper prices since last year.

You can credit all-around weak demand for the falling prices. The January postal rate hike led many catalogers to scale back circulation. What’s more, a dramatic decline in print advertising has led to a decline in page counts for many, if not most, magazines. “I’ve never seen it like this in 13 years,” says Midland Paper’s Cooke. “For the first time, the paper market is reflecting the economic and consumer sentiment. Normally the paper market is zigging when the economy is zagging.”

How long can it last?

To get supply back in line with demand, paper mills are cutting back on production. For instance, according to a March report from Paperloop.com, an online news and business exchange for the paper industry, this spring a dozen North American producers of uncoated freesheet planned to reduce production to eliminate more than 10% of their market capacity.

Mills Weyerhaeuser and UPM-Kymmene are among those that took downtime to reduce inventories, and International Paper indicated that it most likely will be doing so as well. “We’re becoming much more disciplined in our approach to matching our internal supply to demand,” says spokesperson Jack Cox.

Indeed, “the paper mills are getting smarter, and exhausting the supply of existing paper,” says Crutchfield’s Rick.

But Cooke, for one, doesn’t expect paper prices to increase before next year. For one thing, it will take time to burn through the supply to the point where demand rises. For another, neither ad spending nor consumer spending is likely to pick up before then.

“Everyone in the supply chain needs to hold on by our fingertips this year,” Cooke says. “When the economy picks up again, then I think you’ll probably see paper prices increase, but not for the balance of this year.”

Given the relatively low prices, you may be tempted to stockpile paper now. Don’t, says Cooke: “That’s not the best use of capital resources.”

But now is the time to push your suppliers for the lowest possible prices, says catalog consultant Janie Downey of Cumberland, ME-based PublishExperts. “If you work with a printer or a merchant, you really should be asking, ‘Do I have the lowest possible price out there?’”

Don’t hop from supplier to supplier, though, solely on the basis of price, Downey adds. “If the paper market begins to tighten up, you then run the risk of not having a good relationship with a mill,” she says.

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