Special Report: Paper

No one can deny that 2007 was an eventful year, testing the business savvy and agility of some of the industry’s most seasoned players. Last May’s postal rate jump (with another increase slated for May this year) coupled with a weak U.S. dollar presented significant challenges for catalogers trying to maintain control of production costs.

Next to postal rates, paper poses the greatest challenge to most catalogers. The dip in the value of U.S. currency and the strength of the Canadian dollar have led to considerable downsizing among paper mills. Last year, Domtar, Fraser Papers, Tembec Coated Paper Group, UPM-Kymmene Group and Wausau Paper all announced mill closings.

Barring fluctuation in monetary exchanges, the driving factor behind these developments is simple supply and demand. “There’s been a balance strongly in favor of demand for some time now with a lot of excess supply. That has now changed,” says Peter Wilson Jr., vice president of paper procurement and supply chain at printer Quebecor World.

The price increases were also triggered by historically inadequate returns on investments for paper suppliers. “Paper companies have been losing money in many cases, if not most,” Wilson says, “and they need to get to a reasonable rate of return for their investors. They’ll raise prices accordingly if they can.” As a result, supply and demand is in a position where the suppliers are raising prices.

Then again, rising paper prices aren’t necessarily demand-induced. Michael Wade, vice president of business development at Wade Paper Corp., argues that paper price hikes are due to the cyclical nature of the business rather than any significant demand increase.

“Mills aren’t making money, and clients that need paper are confronted by their own challenges, such as postal increases,” Wade says.

Trim, Trim & Trim Some More
Catalogers have responded in familiar fashion by trimming the sizes of their publications in combination with decreasing basis weights. In reaction to prior price increases, catalogers printing on 70-lb and 80-lb free sheets moved down to coated blend and mechanical products, points out Don Wallace, vice president of commercial printing sales at paper supplier AbitibiBowater. This is happening again. Those who were printing on 40-lb coated mechanical can now explore their options on supercalendered (SC)-A and SC-B. (SC paper is calendered groundwood paper made using alternating chrome and fiber rollers that makes a very smooth, thin sheet.) Or those on coated free sheets can drop to coated mechanical products.