Expect Paper Prices to Rise, Cautions ExpertBy Matt Steinmetz
Volatile is a word that is frequently used to describe the paper market. Recent years have seen serious mill consolidation, closures and bankruptcy filings. Skyrocketing postal rates, declining advertising revenue and an increased focus on digital publishing, combined with the economic recession, caused a record-breaking drop in paper demand as publishers (and other mailers) scaled back on print production everywhere possible.
So where does that leave publishers? Rob Artz, vice president of sales at Hudson, Ohio-based broker Graphics Communications will aim to answer that question at a session titled, "Paper Market Forecast for Magazine Publishers: What's Going to Happen?" to be held on Monday, March 8 at the Publishing Business Conference & Expo. Artz will be joined by paper- and print-buying veteran Bill Lufkin, owner and president of Lufkin Strategic Procurement for this insightful session. Here, Artz offered his perspective on the volatile paper market.
INSIDER: Can you offer a brief health report on the paper industry?
ROB ARTZ: For the overall viability of the industry, paper manufacturers do need to see price recovery. The impact of the downturn of advertising and the overall economic climate have caused prices to erode to a point where there is still an overall imbalance of price versus demand. Mills are sensitive to the economics of the publishing community, but costs of pulp and energy continue to rise and mills need to find a way to successfully implement price recovery, without driving off customers.
INSIDER: Do you have a sense of what publishers can expect in the way of supply and pricing in the short- and perhaps longer term?
ARTZ: Short-Term: In 2010, it is best to budget at least one price increase in the range of $2.00/cwt.—$3.00/cwt.
Long-Term: If paper prices cannot recover due to an uptick in consumption or demand erodes more due to electronic alternatives, mills will shut machines down. In the coated paper business, the model will look similar to what we have witnessed in the uncoated and newsprint markets.
INSIDER: Do you expect more consolidation in 2010?
ARTZ: Yes. We have already heard of the Quad/World Color merger. Look for more printers, merchants and paper mills to find alternative solutions to taking capacity out of the market. It may be mergers of larger paper companies with smaller mills. It may be larger mills becoming smaller companies by consolidating existing assets. In either case, the market will continue to constrict at all levels.
INSIDER: Can you go out on a limb and make one or two predictions that might surprise our audience?
ARTZ: We now have several paper mills owned by capital companies. These companies invest for a return on that investment. If they do not get a return on that investment, these companies are not hesitant to make bold moves to become profitable. Those alternatives may be shut-downs, job cuts or bankruptcy. Look for some of the biggest names in our industry to make some moves in 2010 that these owners believe will restore their businesses to a positive cash status.
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