Paper Prices Rise 5% as Supplies Tighten; but New Paper Machines Could Balance Increased Demand for Coated Paper

Folio: the Magazine for Magazine Management, November 1987 | Go to article overview

Paper Prices Rise 5% as Supplies Tighten; but New Paper Machines Could Balance Increased Demand for Coated Paper


Paper prices rise 5% as supplies tighten

Lightweight coated groundwood prices leaped just over 5 percent early last month as paper mills took advantage of a midsummer spurt in demand and subsequent tight supplies. Following close on a July 1 increase, the latest hike means that prices for coated No. 5 basis weights, commonly used by magazines, have shot up nearly 15 percent from May's list price lows.

As of October 1, the price of 40-lb. coated No. 5 rose $40 per ton to $780 per ton. In early August, prices for No. 4 and No. 3 coated free sheet (which together account for about 6.3 percent of magazine paper use) took a similar jump.

Paper buyers, stunned by the rapid succession of increases, say they expect prices to hold through the winter months, but to increase again as early as the second quarter, when the 1988 Olympics and elections will stimulate demand. Noting, too, that magazine advertising is "inching its way back up,' Alan Kavasch, senior vice president at paper merchant Lindenmeyr Central, says, "There's no reason why we couldn't have another increase if demand holds. The paper companies have got to get [increases] when they can.'

An encouraging sign for publishers, however, is that projections last spring called for significant coatedpaper overcapacity in 1988. This is because several new paper machines are coming on line. That capacity should, at least, balance increased demand and hold down price increases, according to sources.

"We used to view the Pine Bluff mill as the one that was going to muddy the waters and throw capacity out of balance,' says Richard Brown, vice president, publication paper sales for paper merchant Alling and Cory. "But now the situation is, "what are we going to do without it?''

Panic in the paper market

At this point, however, paper mills are struggling to rebuild price levels after more than 18 months of decline, say paper merchants and buyers at major magazines. Soft demand led to deep, industry-wide price discounting--even as pulp prices reportedly rose dramatically.

Tight supply resulted in the October increase, says Brown. What's more, labor and production problems, low consumer inventories, threatened strikes, paper shortages and continued foreign competition all hurt the coatedpaper market.

Since midsummer many mills have sold coated groundwood papers on allocation, even turning away new customers. This came about, sources say, because of a rash of seasonal catalog paper buys, which sent a ripple of panic through publication paper buyers. Many had let inventories dwindle during the soft-price period, holding out for even lower prices before placing further orders. Rumors of price increases, followed by actual price hikes, sent many scurrying to rebuild inventories, which strangled supply.

For a number of reasons, says Brown, the mills are failing to bring up supply. Persistent manufacturing problems and maintenance shutdowns are plaguing some major facilities, while other mills, including International Paper and Bowater, have had trouble getting new machines to run at capacity on schedule.

Uncertain labor climate

An uncertain labor climate complicates matters. A strike at International Paper's Androscoggin plant led to operating slowdowns that may have caused some publishers and printers to accelerate orders, says Brown. …

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