Because paper mills generally announce price increases two months in advance, no news is good news when it comes to paper prices. But although the mills have been quiet since January, when they announced the hikes that went into effect in April, catalogers aren’t counting out the possibility of more increases in the third quarter.
For one thing, paper prices are still near their recent market low, even after the April increases of approximately $3/hundredweight (cwt). According to Mark McCready, senior consultant at Tarrytown, NY-based paper consultancy Jaakko Pöyry, catalogers are paying 12% less than last year for 50-lb. coated groundwood (CGW) #4 and 1%-2% less for 60-lb. coated freesheet (CFS).
In fact, Robert Collins, director of supply chain management for Chicago-based services provider RR Donnelley, says that mills cut end-users a bit of a break, reducing the April increases by about 20%. For some mailers, the paper increase was closer to $2/cwt than $3/cwt.
Then, too, catalogers’ paper usage was up 4% in the first quarter of 2003 compared with the first quarter of 2002, says McCready, who expects it to increase even more by the fourth quarter. As Economics 101 students will tell you, increased demand typically results in increased prices.
In early June, rumors began circulating that a major paper manufacturer might be increasing the price of its CFS grades #1-#3 by $2-$2.50/cwt in July, an increase that other major mills would certainly follow. As of press time Catalog Age was unable to obtain any documentation to corroborate these rumors, and no one would comment on the record.
But not everyone believes that prices will increase again this year. Based on information from her company’s consultant, “I expect prices to stay put through the balance of the year,” says Rowena Fullinwider, president of Norfolk, VA-based desserts marketer Rowena’s.
Craig Winer, vice president of New York-based tools cataloger Garrett Wade, also believes that prices will hold steady for the rest of the year. Even if prices do rise, though, Garrett Wade will be in the clear — the cataloger locked in prices with its merchant through the end of the year.
Donnelley’s Collins is on the fence regarding the possiblity of additional increases in 2003. “We expected increases this year, since the mills are in a negative situation where they are losing money,” he says, “but then again, so are many of the catalogers.”
Getting ready to react
Even if prices increase again this summer or fall, Torrance, CA-based Viking Office Products, a division of Office Depot, won’t be cutting circulation. Instead, says Lynn Jakubowski, director of print production for Viking/Office Depot International, the office supplies cataloger may switch its body paper from supercalendered-A to supercalendered-B.
Viking Office Products saw prices increase as much as 10% over the first quarter for lightweight coated (LWC) and various supercalendered (SC) grades, Jakubowski says. The increase was more than she had anticipated.
Like Viking, “the last thing we would do is cut circulation in response to higher paper prices,” says Mark DiMarzio, vice president of creative for South Whitley, IN-based Stumps, a multititle mailer of institutional and consumer party supplies and gifts. “We would rather try to lower our basis weights or implement other cost-cutting measures.” Not that Stumps has to worry about that this year; the parent company of the Shindigz, Everything Elementary, and Celebration Fantastic catalogs has locked in pricing through the end of the year via its printer.
On a more optimistic note, Jim Ray, president of Lynchburg, VA-based McFeely’s Square Drive Screws, says that paper increases are “not always a bad thing and can result in better control, management, and profitability.” When prices shot up in 1994, for instance, Ray scrutinized his circualtion strategy and reduced mailings, causing his profitability levels to increase. If paper prices continue to rise beyond McFeely’s budget, Ray will simply streamline his mailings, he says.
If a late summer hike goes into effect, cautions Collins, your best defense is to have a contract with a partner such as a paper merchant or your printing company. Making your paper source your long-term partner can buy you time when hikes are announced, while the “spot market” — paper purchased for immediate delivery — absorbs the increases immediately. “If you develop a partnership with a paper source that has the resources, you will be in a better position to get the best possible price,” says Collins.
|Benchmark sheet||Price (per ton)|
|CGW #5 (45 lb.)||$645|
|CGW #5 (40 lb.)||$700|
|CGW #4 (45 lb.)||$860|
|CGW #4 (40 lb.)||$900|
|CFS #3 (60 lb.)||$800|