More paper price hikes to come

Expect another rise in paper prices later this year: That’s the word from industry pros. A strike at Helsinki-based UPM-Kymmene Group’s lightweight coated paper mill in Miramichi, Canada, and the continuing high demand for lightweight paper in advance of the expected 2006 postal rate increase are to blame.

“We’re recommending that our customers budget for another $3 per hundredweight (cwt) increase in the second half of this year, potentially as early as July 1,” says David Goldschmidt, vice president of sales and marketing, catalog division for Newport, CA-based paper brokerage Strategic Paper Group. He says that, like the announced $3/cwt March 1 increase, any subsequent increases this year could be across the board, affecting papers ranging from #2 coated freesheet down to the supercalendared-A (SC-A) grades.

The March 1 increase will stick, says Goldschmidt, due in part to the increase in demand for groundwood paper resulting from the strike, which was instigated by the Communications, Energy, and Paperworkers Union of Canada in response to the planned closure of the Miramichi site’s bleached softwood kraft pulp mill. Goldschmidt says that the strike, which began Dec. 16, and may continue throughout 2005, took out about 7% of the North American supply of coated groundwood.

What’s more, the weakened dollar means that European paper companies such as UPM and Helsinki-based Stora Enso can make more money by concentrating on selling their paper in Europe instead of the U.S., says Will Mies, editorial director of San Francisco-based trade publication Pulp & Paper Week. The level of imported papers coming into the U.S. will most likely drop off this year, further tightening the supply of the high-gloss lightweight coated stock that European mills have become known for.

It doesn’t help, Goldschmidt adds, that just as groundwood capacity has taken a hit, interest in it has risen. “With the price increases [among all paper grades] we had in 2004 and the potential for more increases this year, a lot of companies had to go down to lower grades, and ‘lower grades’ means groundwood,” he notes. What’s more, many mailers are also seeking to reduce the weight of their catalogs by using lightweight coated groundwood grades to compensate for the increased costs expected after the postal rate increase takes effect next year.

Bill Orndorff, vice president of materials management for Waterloo, WI-based printing company Perry Judd’s, says that he’s seeing a number of catalogers switch from #5 sheets to SC-A grades. SC-A papers are currently 3%-4% less expensive than the #5 coated grades, according to Orndorff.

Ridgefield, CT-based artificial flowers and home decor cataloger Petals, for one, is trying a less expensive sheet, says CEO Chris Topping. The company, which prints on 38-lb. Domtar Schooner — a coated #4 sheet with an 84 brightness level — for the text and 70-lb. to 80-lb. coated freesheet for the covers, is testing a paper of the same weight but lesser brightness.

In addition, this fall Petals will test a lighter-weight sheet for either the entire inside or the first 16-page signature of its 92-page holiday catalog. Since the book will exceed 3.3 oz., the limit for the U.S. Postal Service’s flat piece rate, keeping the weight as low as possible will help Petals reduce mailing costs.

Because the market is so much tighter this year, catalogers will be less likely to be able to sign long-term price-cap agreements with the mills. With demand as high as it is, paper companies have less incentive than they had in past years to guarantee pricing. As Orndorff says, “This is a seller’s market vs. a buyer’s market.”

Accompanying the short supply and high prices is a lengthening of necessary lead times. Whereas a year ago companies were often able to source their paper within four weeks, these days typical lead times are “easily six to eight weeks,” Orndorff says.

Petals’ Topping says that catalog companies should give themselves plenty of leeway when sourcing paper. “If you’re contemplating testing, and if the testing involves procuring a paper from a different mill than your broker traditionally buys from, you should allow for more time than you usually would,” he says.

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