The days of rock-bottom paper prices may be over. In early August, most of the major paper companies, including International Paper, Stora Enso North America, MeadWestvaco, and Sappi Fine Papers, announced increases on most web grades of $2-$3 per hundredweight (cwt). On paper industry Website Paperloop.com, Mark Bishop, vice president of investment research, forest products for Vancouver-based investment firm Raymond James, said the increases “would take prices from the current level of $690/ton to $730/ton for the benchmark 50-lb. offset rolls product.”
Granted, the increase is a relatively modest 5%-6%, which John D. Maine, vice president of pulp and paper for Bedford, MA-based paper forecasting firm RISI, describes as typical. And given that paper prices have been so low — Maine notes that since late 2000, they’ve declined 24% — the price hike may seem larger than it actually is.
Even with the price increase, Lenox Collections, a Langhorne, PA-based cataloger of tabletop items and collectibles, is paying less for paper today than it had five years ago, says director of creative services Lisa Woodard. “We work closely with our paper merchant, and we anticipated hikes,” Woodard says, “so we have already looked at ensuring efficiencies with our paper and budgeted for what we calculated as a probable increase.”
Will the increase stick?
Some catalogers have managed to sidestep the price increase, at least for now. Fleetwood, PA-based men’s apparel cataloger Paul Fredrick MenStyle submitted its paper order a few weeks prior to the hikes, when its paper merchant and mills alerted the company to impending hikes, says senior vice president of marketing Allen Abbott.
And Ross-Simons, a Cranston, RI-based cataloger of jewelry, tabletop items, and gifts, has a contract with its paper merchant guaranteeing its current pricing until the end of the year, says vice president of marketing Cindy Marshall. As for next year, “we are not sure what January will bring us,” Marshall says, but she does not expect prices to continue rising, or even to stay flat. Demand will soon wane, she believes, and without demand, the paper companies will need to cut prices to unload excess inventory.
In fact, many had expected paper prices to remain stable through the rest of the year because declining demand (see chart at right) has led to leftover inventory. But many mailers with multiple holiday drops are still buying paper for their seasonal books. This holiday demand, RISI’s Maine explains, probably prompted the paper companies to raise prices.
For that reason, Paul Fredrick hasn’t even factored additional paper price hikes into its budget. Abbott contends that once the peak catalog printing season is over, demand — and with it, prices — will drop.
But Mike Sciglibaglio, print production manager with New York-based catalog consulting agency Marke Communications, says that the mass consolidation within the paper industry and the subsequent decrease in competition and capacity may make it easier for paper manufacturers to stick with a rate hike. During the past two years alone, Stora Enso and Consolidated Papers merged, as did International Paper and Champion, and Mead and Westvaco Papers.
“The increase was almost inevitable with the low prices that have persisted for more than a year,” Sciglibaglio says. “The paper companies need to make money.”
Demand for paper has declined during the past two years:
Total U.S. demand for printing and writing paper
down 2.3% YTD v. 2001
down 9.0% YTD v. 2000
Demand for coated freesheet
down 10.7% YTD v. 2000
Demand for uncoated freesheet
down 10.1% YTD v. 2000
Demand for coated groundwood
down 11.1% YTD v. 2000
Source: Reid Carter, paper and forest products analyst, National Bank Financial (courtesy of Paperloop.com)