No Relief in Sight from Price Hikes

If you were hoping for relief in the tight paper market, think again. Catalogers can expect low supply, high demand — which translates to unfavorable pricing for the remainder of this year into early 2005, says John Maine, vice president of Bedford, MA-based forest industry research group RISI.

Maine, who noted in July that the coated and super-calendared-A (SC-A) papers favored by most catalogers would be in short supply through 2005, hasn’t changed his forecast. “The market is still very tight,” he emphasizes. “Producers are sold out with backlogs extending eight weeks, and with some producers out as much as 12 weeks.”

Prices for coated and SC-A papers rose about 6% in early summer, Maine noted. As of late September, many mills were raising prices again, by as much as 7%.

High times, high prices

The tighter market and higher prices are a function of the catalog business and the economy in general picking up, says Doc Maiorino, vice president of publication papers for Montreal-based paper manufacturer Domtar. “As long as consumers are buying, catalogers will be increasing their products and page counts, and we will see a tight market.”

Maiorino says that two across-the-board price increases for #4 and #5 groundwoods and #2, #3, and #4 coated freesheets are a possibility for next year. He says he wouldn’t be surprised to see price increases of $2-$3 per hundredweight (cwt), announced in the first and third quarters of 2005, going into effect in the second and fourth quarters.

Miami-based printing company St. Ives USA also expects an increase of $2/cwt-$3/cwt on lightweight coated and SC-A papers by April, says executive vice president/general manager Gary Davis. But Pete Stein, executive vice president of sales and marketing for Los Angeles-based printing company Graphic Press, predicts a more modest increase of $1/cwt-$2/cwt for the first half of 2005 for the coated #1 through #3 paper grades.

Still, any increase is problematic to mailers — which is why Andy Correa is glad his company, A.G.A. Correa & Son, bought paper when it did. The Edgecomb, ME-based jewelry cataloger had bought nearly a year’s worth of paper this past spring, before the summer increases went into effect. Correa estimates that the cataloger, which prints 1.7 million 58-page catalogs annually, would have paid up to 25% more for paper if it hadn’t stocked up when it did.

A.G.A. Correa uses Influence Gloss, a #2 coated freesheet (70 lb. for the cover, 60 lb. for the body text) from Stamford, CT-based International Paper Co.; it buys its paper through Menomonee Falls, WI-based printer Arandell Corp. Correa says his company spends about $89 on paper per 1,000 catalogs printed.

Feeling the pinch

One particle of good news: Though prices will rise, capacity will not be cut further, says St. Ives’s Davis. The mills reduced their excess capacity “all at once and are not looking at incremental cuts going forward,” he says.

Then again, the mills won’t be adding capacity either. After years of suffering from an oversupply, they are just now slowly coming into balance with demand. Pricewise, it behooves the mills to keep paper capacity a little below demand, so that they can charge more money for their products.

Burlington, VT-based Gardener’s Supply Co. is feeling the impact of the leaner capacity, says catalog production coordinator Jada Roberge. The company’s supplier, Helsinki-based UPM-Kymmene, was not able to supply it with the #5 coated groundwood gloss finish sheet it uses for its Dutch Gardens title in time for its spring print run.

“We’re having a difficult time getting more paper for circulation increases,” Roberge explains. “It’s a real challenge if you need to go above and beyond what you were allocated.”

For Dutch Gardens, Gardener’s Supply settled on a #5 groundwood with a satin finish, also from UPM. “We’re under contract,” says Roberge, “so we were able to keep costs at a set price.” She expects prices to rise into next year, but for now the cataloger is not concerned, since it has extended its contract into 2005.

Indeed, Gardener’s Supply isn’t the only cataloger feeling the pinch — and more marketers may see similar paper shortages in the months to come.

“With no domestic capacity coming on line, and European producers disenchanted with the U.S. market by the strong euro and the better markets [in Europe], we can expect supply to remain tight through at least mid-2005,” says RISI’s Maine. For now, he says, “the only thing that will stymie the current run-up in prices is weaker demand.”

Partner Content

Hincapie Sportswear Finds Omnichannel Success in the Cloud - Netsuite
For more and more companies, a cloud-based unified data solution is the way to make this happen. Custom cycling apparel maker Hincapie Sportswear has leveraged this capability to gain greater visibility into revenue streams, turning opportunities into sales more quickly while gaining overall operating efficiency. Download this ecommerce special report from Multichannel Merchant to more.
The Gift of Wow: Preparing your store for the holiday season - Netsuite
Being prepared for the holiday rush used to mean stocking shelves and making sure your associates were ready for the long hours. But the digital revolution has changed everything, most importantly, customer expectations. Retailers with a physical store presence should be asking themselves—what am I doing to wow the customer?
3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.