Five Paper Trends to Watch for 2010: Publishers Have Enjoyed Declining Paper Prices for the Past Year. despite Continued Overcapacity, That May Change in 2010. Here's Why
Walsh, Daniel, Folio: the Magazine for Magazine Management
WHERE PAPER IS CONCERNED, it's been an "interesting" 18 months in the magazine publishing industry. Just a little over a year ago, paper prices were just beginning to come off the "thank you sir, may I have another" increases that characterized most of 2007. In fact, if you recall, we were satisfied to just have paper for the next issue, never mind the price. My how things have changed in such a short time. The only good news that publishers have seen in 2009 is that paper prices have been driven down by over 20 percent from year-ago levels, possibly helping to keep a few publications afloat in this poor economy.
1 Mills Will Try to Raise Prices While Continuing to Limit Production
But what are prices doing now? Have they stabilized, or is there a possibility of another 2007 just around the corner? It appears that the free fall of paper prices has hit bottom, and for the first time in over a year there have been price increase announcements by paper manufacturers. Manufacturers are basing (blaming) the increases on increased costs for raw material (pulp) and energy. The increased input costs are legitimate, but as in most other businesses operating in a free market economy, prices are usually determined by supply and demand. Regarding demand, there has been an ever so slight uptick in orders, but to say there is even moderate demand now for printing and publishing papers would be erroneous.
On the supply side, paper manufacturers have been curtailing supply by temporarily shutting paper machines down to limit their production. This has been done across the breadth of paper grades and manufacturers. Additionally, some manufacturers have permanently shut down entire mills, with a great loss of jobs, all in an effort to remain profitable and frankly for some, remain in business. Sappi Papers, for instance, has announced the permanent closure of its Muskegon, MI facility. Sappi produces high quality stock for magazine covers and catalogs. Kruger Paper has announced they will no longer make coated groundwood paper, effective in October, at its Trois Rivieres facility in Quebec. Unfortunately for paper manufacturers, all the efforts to stem the tide of paper have not been enough to keep up with the decline of demand. Considering the still weak but somewhat increased demand for paper and the current overabundance of supply, it remains to be seen if the announced price increases will be able to be sustained, or if they will fall apart like other increases in the past that were not backed by a strong increase in demand.
2 Tax Credits for Paper Industry To End December 31, 2009
A significant factor in helping paper manufacturers stay afloat in these rough times has ironically been the federal government. By discovering an odd "loophole" in a government-backed environmental initiative, paper manufacturers have been able to reap enormous amounts of cash through the "Alternative Fuel Tax Credit" program. Manufactures such as International Paper have benefitted by over $1 billion. The paper industry has long used a by-product of the paper-making process called "black liquor" to help power their mills. Someone figured out that if the mills began blending small amounts of diesel fuel with the black liquor, they could qualify for the tax credits. A few in Congress have been outraged by this, because the use of black liquor has been a long and pre-existing practice by the paper industry. It is now anticipated to end December 31, 2009. Since many mills claim to be operating at or below "cash cost," it will be interesting to see what happens. It will either result in more mills ceasing operations or prices rising.
3 Demand Will Rise
However bad the economy is now, demand, as always, will return. Magazine ad pages will come back; page counts and circulation will grow. For instance, as reported by FOLIO:, Hachette has recently announced major redesigns of some of its brands which include larger trim sizes and higher quality paper. …