At first glance, 2007 looks like a gloomy year for paper supply. Prices are weak and have been eroding for two years, and mill capacity remains high as new sources enter the market.
But while newsprint sales are decreasing in North America, digital grades are selling more strongly than ever. Meanwhile, many printing clients are asking for environmentally–friendly grades of paper for their jobs.
For a cost–conscious printer, there are many opportunities to make greater profits and deliver greater value to customers.
Statistics
According to the Paper Trader, a monthly paper markets newsletter, worldwide paper prices are declining. Overcapacity in the North American market is depressing prices below the cash cost levels for some of the higher–cost mills, leading to mill shutdowns and layoffs. The Paper Trader is predicting that the North American market will remain “very weak for 2007.”
The Pulp and Paper Products Council (PPPC) spun off in 2000 from the old Canadian Pulp and Paper Association, and they are the main—in fact, the only—source of reliable statistics on paper production and consumption in Canada. The PPPC’s statistics shown here represent total Canadian figures for newsprint, printing, and writing grades of paper, both imported and domestically produced. That measure is also a good proxy of printing activity in the country, and it shows overall growth as fairly stagnant since the turn of the 21st century.
Total consumption of newsprint, printing, and writing grades of paper across North America peaked in 2000, according to statistics gathered by the Pulp and Paper Council. Since then, it’s dropped, from a high of 3.5 million tonnes to 3.1 million tonnes in 2006. “Consumption has been relatively flat since 2002,” says Paul Leclair, the PPPC’s Chief Economist. And, according to the Paper Trader, the prices for coated mechanical paper grades have been eroding since the end of 2005. In January 2007, prices dropped by an average of $20 per ton (US figure).
Newsprint volumes account for much of the decline, and finer grades of paper, classified as “printing and writing grades” by the PPPC, are not suffering as much as newsprint, says Leclair. Newsprint consumption is down in North America and western Europe, coincident with the growth of the internet. “Specifically, [decline in] newsprint consumption correlates very closely with high–speed or broadband internet growth,” Leclair explains. Classified advertising, mostly of cars, houses, and jobs, is now largely handled by specialized web–based services.
According to RISI (originally Resource Information Systems, Inc., online at www.risiinfo.com), publishers of a number of reports on the global forest products industry, the 21st century ushered in a major shift in the worldwide paper industry. “Between 2000 and 2005 alone, more than 100 mills closed in North America, while capacity continues to grow in Eastern Europe and China with the addition of more than 120 new machines,” reports the company.
The digital shift
One sector of the paper market that is actually growing is digital paper—an awkward term used to describe paper suitable for use in digital presses, printers, and copiers.
“It’s a higher–priced category than offset papers,” says Jim Dorkin, of Precision Fine Papers in Markham, Ontario. Digital presses have different requirements when it comes to a paper stock: they require a different finish on the sheet than an offset press does, and they also require cut stock, usually 8.5 x 11 or 12 x 18 inches. The growing use of digital printing is driving up the consumption of digital paper stocks.
“We have to stock more sizes and formats of cut sheets for the digital printer customers that we have,” confirms Carolyn Daly, Marketing Communications Supervisor with paper supplier Spicers in Toronto.
The other type of paper in greater demand is “environmentally friendly” stock—not just recycled papers, but paper grades that satisfy the requirements of the Forestry Stewardship Council. The FSC is an international not–for–profit organization that works to solve the problems created by unsustainable forestry practices and to reward good forest management. Its “FSC–approved” logo can be applied to the labels of products, including printing paper, produced by companies that meet its requirements for energy use and other practices that reduce their impact on forests and the natural environment.
“Demand for FSC–approved paper is a growing trend,” agrees Precision’s Jim Dorkin. “[But], not that many printers are willing to pay more for it.”
“There’s a much bigger push from the printers for FSC–certified papers than there ever used to be,” says Spicers’ Daly. “Some printers and their customers are willing to pay more for environmentally friendly stocks. However,” she agrees, “most want it and ask for it, but aren’t willing to pay more for it.”
Unfortunately for paper suppliers, meeting FSC standards requires them to pay more—in the form of different kinds of energy generation and other sustainable practices. Says Daly: “The printer will ask for FSC–approved paper, and we’ll go to the mill to ask for it. The mill will make the investment to deliver it, but then the printer will opt for the Chinese paper because it’s less expensive.”
Lots of talk about paper from China
The biggest paper buzz in today’s printing market revolves around the rapid growth in availability and consumption of paper from Chinese mills.
“Over the past three or four years, we’ve starting importing more of the paper we sell. Ninety percent of the paper we sell now is sourced offshore, primarily from China,” says Dorkin of Precision Fine Papers. “From a company that used to be a converter with distribution capability, we’ve become a distributor with converting capability.”
And 80 percent of the paper imported from China is in the form of “finished goods”—that is, cut sheets. “The economics of buying rolls of paper from China are not as good, because the Chinese mills don’t differentiate in price between rolls and sheets like the North American mills do. We generally cut the rolls we import into specialty sizes of sheets.”
“The Chinese mills are starting to take more [North American] market share,” agrees Carolyn Daly. “What’s more significant is that some of the new players in the Canadian market are starting to bring in more paper manufactured from China.”
This trend marks a change in the market’s perception of imported paper, particularly paper imported from China. “Where the paper comes from is not an issue with customers anymore,” says Dorkin. “The Chinese deliver a very high quality sheet, exactly meeting North American specifications for basis weight, caliper, and opacity.”
What’s important to most buyers is that the paper runs and can save the printer some money. As Dorkin puts it, printers “are always looking for paper that will run well on the press at the lowest possible price.”
But Paul Leclair of the PPPC dismisses the impact of the Chinese mills. “There are much bigger exporters of paper in the world than China. Everybody’s afraid of China, because when they start growing in a market, they grow [quickly]. But the US is
still by far the largest foreign source of fine grades of paper, and Canada supplies its own market for newsprint.”
Imports from China have risen dramatically in recent years, he agrees, “but they’ve risen from almost nothing—5,000 tonnes in 2000 to 45,000 tonnes in 2006. That’s a big increase, but the total demand in Canada in 2006 was 3.2 million tonnes.” In short, Chinese paper imports account for just 1.4 percent of the total amount of newsprint, printing, and writing grades consumed in Canada last year.
Last month, the U.S. trade department imposed countervailing duties on Chinese paper, among other products. The total impact of this move on paper supplies and prices remains to be seen.
The paper supply in Canada
So, what does all this mean to Canada’s paper merchants and to printers?
For the time being, it means paper prices will probably remain stable. 2006 was the “top of the price cycle,” explains Paul Leclair. Prices will be on a generally downward trend, aided by overcapacity in the domestic market and the arrival of new sources from Asia and Eastern Europe.
In January this year, Abitibi Consolidated of Montreal and Bowater of Greenville, South Carolina announced they would merge, becoming the third–largest paper and forest products company in North America and the eighth–largest in the world, with a total worth of over $8 billion US. Both companies had been losing money in recent years. The effect of the merger on the Canadian printing market have yet to be seen, but will probably help to stabilize prices.
Other paper merchants are finding success in new tactics. Precision Fine Papers, for one, has adopted a more aggressive selling strategy, hiring two salespeople for the first time. “Sales are up significantly because we’re much more aggressive in the market today,” Dorkin explains.
“Also, we’re focusing more on [the] particular segments of the market that we can serve best. We’re not trying to sell to everybody.”
Spicers is sticking to the basics with which it has already had success. The company itself is a relatively new player in Canada, but it’s really a combination of a number of longtime players, having acquired Coast and Cascades paper merchants last year. “Coated and uncoated papers are still our biggest sellers,” says Carolyn Daly. European and North American mills are their main sources, for reasons of quality and reliability, and new mills are still a minor part of the business.
The impact on printers
For printers, the current paper market also offers a number of opportunities. Low prices and high capacity mean there are deals to be made. The glut of papers in the market also means that discerning printers may be able to make high quality available to their customers for less money. Wide availability of FSC–approved papers also means that printers have the opportunity to deliver environmentally–sustainable options to their clients—an option that many clients are now requesting.
