Catalogers May Get Relief on Paper Prices

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With postal prices on the way up, the catalog industry will be happy to hear that forecasts call for paper prices to stabilize, if not decline, in the coming months.

The paper market, like all markets, is about supply and demand. Trends suggest supplies will be growing while demand falls.

For catalogers, lower paper prices would mean improved profits. John Snyder, print and production manager at Norm Thompson Outfitters, said his company is budgeting on the assumption that paper prices won't get any worse.

"I wouldn't say it impacts our prospecting," Snyder said of paper prices. "It impacts our bottom line. It would be great if it went in the other direction."

Rising energy costs are putting pressure on paper suppliers, analysts said. However, oversupply -- partly because of increasing availability of imports -- is causing a downward trend for prices in some classes of paper, especially coated grades.

"Even if costs are going up, it's very difficult to transfer costs to customers if the market is oversupplied," said John Maine, vice president at RISI/Paperloop, a paper industry research group.

Prices for coated groundwood paper -- the main grade used by catalogers, and also known as coated mechanical -- rose as recently as June and July, Maine said. However, those prices have probably peaked.

For coated freesheet paper, used in high-end magazines and catalogs, imports have taken a growing share of the North American market since 1997, said Verle Sutton, editor of The Reel Time Report. The Reel Time Report is a monthly newsletter on the publication-grade paper industry produced in conjunction with Forestweb, a forest-products market intelligence company.

New supplies of coated freesheet paper from Asia and an oversupply in Europe have contributed to this trend. In 1997, 97 percent of all domestic coated freesheet purchases came from domestic sources, Sutton said. This year, only 80.7 percent of coated freesheet purchases has been domestic.

In addition, labor troubles causing shutdowns at mills of major suppliers -- largely responsible for the previous upward price trend -- are ending. Mill workers in Finland, which supplies 20 percent of the North American market for coated groundwood, went on strike last year, but the strike ended in June. Extra paper supply from Finland could begin to affect the U.S. market in September or October, Maine said.

At another major supply source, a mill owned by paper manufacturer UPM in Miramichi, New Brunswick, workers have been on strike since December. An end to that strike, possible before the end of 2005, would increase supplies even further, Sutton said.

Supply likely will continue to exceed demand in 2006, especially if the Miramichi strike ends. Rising costs and declining prices signal tough times ahead for many paper manufacturers.

"The paper guys are really struggling," Sutton said.

Richard Dethloff, director of purchasing at catalog printer Arandell Corp., said he doesn't expect the price relief from the end of the Finnish strikes to reach U.S. shores for some time. However, if and when prices fall, it could be a boon to printers serving the direct mail industry.

"Maybe they'll print more catalogs," he said.

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