Magazine article Folio: the Magazine for Magazine Management

Paper Buyers Brace Fr Another Hike; Supply Is Tight, Mills Are Fat and Happy - Only a Recession May Turn Prices Around

Magazine article Folio: the Magazine for Magazine Management

Paper Buyers Brace Fr Another Hike; Supply Is Tight, Mills Are Fat and Happy - Only a Recession May Turn Prices Around

Article excerpt

Paper buyers brace for another hike

The unpredictable paper market of the last few months has buyers braced for a July price hike.

Following three consecutive quarterly price increases for lightweight coated No. 5, many buyers were certain of a fourth jump on April 1. Although that increase never materialized, supply for most common printing grades remains extremely tight, and publishers expect their demand to hold through 1988.

If the economy remains as it is, and ad page sales hold, a July 1 price increase is likely, predicts Richard Brown, vice president, Alling and Cory.

Fears of a price increase are further fueled by March's 5 percent to 6 percent increases in No. 4 prices. Many buyers saw the increase as a test balloon for a general price hike.

The question mark, however, is demand. An economic recession, which many buyers fear in 1989, could slow advertising and thus demand.

Catalogs and direct mail also play a role. Last year at this time, mail-order houses, stocking up for huge fall mailings, launched the market into a supply squeeze that set off the recent series of price increases. Whether that surge in demand will recur this May is a matter of much nervous speculation.

Not trusting future demand, sources say, paper mills are looking for whatever increases they can get while demand is firm.

Mixed signals

A number of other market variables complicate the pricing equation. Postal rate increases may loosen supply by forcing magazine and catalog publishers to reduce publication sizes and pressruns. If the dollar remains cheap abroad, U.S. mills may sell more of their output in overseas markets. Expiring labor contracts at pulp and paper mills could result in short-term supply crunches. And continued aggressive increases in pulp prices may force paper mills to hike prices further.

However, as mills approach the price peak reached in 1985, they face greater resistance from their customer base. "[Recent increases] were easy when the paper mills were just trying to regain lost territory," says Brown, "but now they are venturing into virgin territory."

Paper mills cite rapidly rising pulp prices as justification for recent price hikes. April 1 marked th tenth consecutive quarterly pulp price increase, and paper buyers agree that those prices will increase at least once more this year. Apparently, pulp is in short supply, and little new capacity is in sight, notes a major magazine paper buyer. This source, however, like many other buyers, believes that pulp accounts for only a third of paper costs.

Strategic pricing

Many buyers, too, cite reports that paper manufacturers are riding atop their highest profits in years. "Prices are below their 1985 levels," concedes Arthur Escudero, paper buyer for The Hearst Corp., "but look at their profit/loss statements. I don't hear anyone crying the blues."

As the market equation becomes more complicated, paper mills have apparently launched a more calculated pricing approach, according to Rick Irwin, general manager, Gould Paper Corp.'s publication division. …

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