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Paper pricing UPDATE

Trends that may affect future prices

As we move into the middle months of 2015, the industry as a whole will need to keep an eye on the volatility of paper pricing.

Several major variables will continue to impact not only the price of paper but the rate at which prices shift. The biggest factor at work is the ongoing consolidation of the industry. In addition to the forthcoming $1.4 billion Verso purchase of NewPage, Canadian manufacturer Catalyst Paper recently entered the U.S. mix by announcing its intent to buy two of NewPage’s coated paper mills in Wisconsin and Maine.

“The consolidation on the paper-manufacturing side is happening very quickly,” says Travis Mlakar, president of Millcraft. “There is a lot of capacity coming out of the system. So as supply decreases, if there are changes in customer demand, it can affect pricing very quickly.”

Complicating matters is the green movement, as many diverse industries are seeking more environmentally friendly manufacturing options, particularly when it comes to biodegradable packaging. One high-profile example is Dunkin’ Donuts, which is exploring the possibility of eliminating, or at least vastly reducing, its use of plastic and Styrofoam coffee cups in favor of the greener option — paper. If a major national
company such as Dunkin’ Donuts were to lean entirely upon the shrinking paper industry for its disposable cup supply, it could have a profound impact both on the industry and on all of its customers.

“People would see that pricing would become very firm,” Mlakar says. “You could see prices increase from there, with maybe less than 30 days’ notice. On top of that, the lead time for suppliers to get product out would rapidly increase. Orders that used to have a lead time of one or two weeks could get bumped out almost overnight to four to six weeks.”

Paper manufacturers and distributors have discussed adding capacity to deal with such a spike in demand, which would help keep prices and lead times in check, but that doesn’t appear likely.

“The industry is declining at 3 to 5 percent per year,” Mlakar says. “Major growth isn’t really an
option. Instead, you’ll see companies invest in the equipment they have and try to maximize productivity there.”

On the uncoated paper side, industry analysts are keeping an eye on a trade case filed in January of this year by domestic manufacturers against mills in China, Portugal, Brazil, Indonesia and Australia. The case alleges that unfair competitive advantages from overseas manufacturers are keeping uncoated paper prices
artificially low.

“The domestic producers will allege that the overseas competitors are getting government subsidies and benefit from advantages brought about by operating in non free trade markets like China,” Mlakar says. “If they have their way, the U.S. government will get involved, and that could impact how low uncoated paper prices stay. It’s something to keep track of.”