Paper Update: Prices Hikes Likely as Demand Rebounds

Jan 01, 2003 10:30 PM  By

The increasing demand for paper is certainly an encouraging economic sign. But for catalogers the good news has a downside: Increased paper demand generally translates into paper price increases.

John Maine, vice president of pulp and paper for Bedford, MA-based paper and economic forecasting firm RISI, predicts a rise in demand of many catalog grades in 2003. Demand for coated freesheet, uncoated freesheet, and uncoated groundwood papers, including supercalendered stock, is expected to increase 3%, while coated groundwood demand will increase 5%, he says.

Shipments of paper had already started rising during the fourth quarter of 2002, according to paper industry Website Paperloop.com. “I think catalogers are preparing for increased circulation and prospecting as the economy begins its build,” says Doc Maiorino, vice president of sales, publications papers for paper manufacturer Domtar. The Montreal-based company has seen a slight rise in demand from mailers.

In October, most of the major paper manufacturers increased the prices of many freesheet grades by $2/hundredweight (cwt). And in November, paper manufacturers Domtar, International Paper, and Stora Enso announced plans to raise prices in January on all coated freesheet grades. According to Paperloop.com, International Paper announced plans to raise coated groundwood grades $1/cwt as well.

“From a manufacturer’s perspective, the price hikes were necessary,” Maiorino says. “We are under the same extreme pressure that our customers are under in this economy.”

Rising, but still low

Catalogers seem to recognize the manufacturers’ need to raise prices. “The paper companies have been losing money hand over fist the last few years, so these increases are not surprising,” says Michelle Rick, director of acquisition for Charlottesville, VA-based Crutchfield, a cataloger of automobile and consumer electronics. Her nonchalance is no doubt due in part to the fact that “prices are still lower than they have been in years,” she says.

In fact, according to RISI, prices are lower than they were 10 years ago. For example, the price of 40-lb. lightweight coated averaged $670/short ton (ST) in November 2002, compared $680/ST in April through June 1992.

Also taking the rate hikes in stride is Jay Allen, marketing manager for Alpharetta, GA-based Rochester by Mail, a division of San Francisco retailer Rochester Big & Tall. The cataloger of men’s apparel has already budgeted for both the January increase and one more rate hike for 2003, just to be on the safe side.

“If there are more than two hikes in 2003, though, we will have to look into lower price options such as lowering our basis weights,” Allen says, “but we would hate to have to do that because we are in a very aggressive growth mode.” Rochester by Mail currently uses 45-lb. #4 freesheet for its catalogs.

Medford, OR-based Bear Creek Corp., which mails horticulture book Jackson & Perkins and food catalog Harry and David, is locked into a contract and will not see price increases until it renegotiates with its paper mill this year. But vice president of advertising production services Neal Schuler says that the $2/cwt increases that have been announced are “on the low side.” The typical range is $2-$4/cwt, he says.

And yes, like the other catalogers contacted, Schuler believes there will be at least one more modest hike before the end of 2003. “But I really think the mills are more responsible now, and you won’t see 40% increases over the span of a few months like we did in 1994-1995.”