American Printer's mission is to be the most reliable and authoritative source of information on integrating tomorrow's technology with today's management.
Feb 1, 1998 12:00 AM
Buying paper in 1998 will continue to be a delicate balance of price, sourcing and product considerations. For commercial printers, the good news is that a relatively stable market is predicted for this key consumable by most major paper analysts (see accompanying sidebar for two such views).
That means paper buyers can focus equally on two other important elements in their decision-making: 1) product quality/characteristics and 2) supplier relationships.
Speaking of quality issues, one trend to watch across the paper markets in 1998 is a growing number of products that attempt to redefine their grade--in effect offering a better sheet for a lower price or a higher-performance sheet at the same price. Here's an example of this redefinition strategy.
Coated Freesheet--Potlatch Papers' McCoy premium sheet was introduced late last year as in a category by itself--the new category of Plus One. Priced slightly above a No. 1 sheet but with a premium's quality, McCoy offers a blue-white ultra-bright (96 brightness) product created in response to customer resistance to the priceyness of most premium sheets, according to Phil Cavalier, advertising manager for Potlatch. (One such sheet was Potlatch's own Eloquence, which the company decided to discontinue at the end of 1997.)
Positioned against other ultra-premium products such as S.D.Warren's Strobe and Consolidated Papers' Reflections, McCoy is engineered to satisfy the needs of high-end color projects that include photographs or images with texture, combined with a low-glare surface and a choice of four different finishes.
"We're pretty happy with the new premiums and No. 1s out there," comments Dave Zebrack, manager of purchasing for Lithographix in Los Angeles. Zebrack bought about 10 million sheets of No. 1 and 600,000 sheets of premium stock for his company's annual report and brochure customers last year. "Even the recycled product just keeps getting whiter and brighter--everybody's improving their sheets," he says. Zebrack says his shop will always test a new sheet but with an eye toward reliability and consistency from run to run.
That's because there are some gotchas to watch for with these ultra-premium blue-white sheets. Bob Dresmann, vice president of administration for Hennegan Printing (Florence KY), says some of the annual report stocks his shop runs have such a slick surface that they appear to offer no ink absorption at all. Hennegan has recently begun testing Potlatch's McCoy product, and Dresmann reports initial success with it. "Designers absolutely love it," he adds.
Dresmann also notes that prices have tightened recently--between $1.75 and $2.75 per hundredweight for Hennegan's grades. "I'm looking for some foreign sheets to come into the market later this year and loosen prices up again," he adds.
Uncoated Freesheet--Look for the short-run and digital printing papers to continue adding grades and packaging options as mills continue to seek certification on new equipment. That's one trend that Tamara Pope, vice president of marketing for Avenor Inc.'s white paper group, says she'll be watching in 1998. Mills are seeing increased demand for new sheet and roll sizes, packages and surfaces, as the installed base of new digital equipment grows bigger.
The great unknown for uncoated freesheet is "the Asian flu," as Pope calls it: the current economic crisis in Asia may trigger a flood of import products that would rewrite the experts' 1998 forecasts. Otherwise, "small, incremental" price increases in this segment are what Pope expects.
A trend that may continue in 1998 is an interesting variation on the merchant versus direct purchase theme. Call it the "direct-through-merchant" channel, one which Johnson and Quin, a high-end direct mail shop (average daily volume: 300,000 pieces mailed) in Niles, IL, is pursuing this year. Scott Campbell, manager of purchasing, buys around 10 million pounds of paper annually, about three-quarters of it commodity white offset. His company buys 100 percent through its four merchants (tied to three mills), in order to balance price and flexibility.
Given his market for millions of 81/2 x 11 laser forms, Campbell works with merchant and mill to go beyond the standard guarantees for "laserability." With certain highly specific customer requirements, he gets a signed letter from the mill and merchant pertaining to allocations and pricing, in which he includes a full disclosure of Johnson and Quin's own plans for the paper stock over the next 90 days. "The most important thing you can do is just build a strong relationship with your merchant," Campbell advises.
Coated Groundwood--Another key trend in the market for publications papers is a change underway in the long-standing battle between SC and LWC grades. (For the uninitiated, those are abbreviations for "super-calendered" paper versus "lightweight coated" stock. Both are grades of groundwood.)
Lightweight coated has always been the workhorse of the high-volume web offset or rotogravure printing of catalogs, magazines and newspaper inserts, especially in North America. These three segments divide this 10 million-ton market (in North America) roughly equally.
LWC primarily falls into the No. 4 and No. 5 groundwood coated grade categories, with basis weights of 30 lb. to 40 lb. The quality of LWC has remained constant over the last decade or so, and it has generally been thought of as a cut above SC grades. LWC has garnered almost 90 percent of the publication-grade paper production in North America, but now that proportion is likely to shift back toward a balance with SC paper. Here's why.
Supercalendering refers to an off-line buffing or smoothing technique applied at the end of the papermaking process. The grades of supercalendered paper are (in rising order of quality) SCC, SCB, and SCA. Almost half the magazines in Europe are printed on SC paper, largely because of the easy availability of SC product there.
Advances in papermaking technology a few years ago led to the appearance of a new grade, SCA+, in Europe. In terms of all the key factors--brightness, unprinted gloss, and smoothness--this development meant that the traditional quality gap between LWC and the top SC grade suddenly disappeared. The result: printers and publishers could now choose to improve their paper quality at no additional cost or cut production costs without cutting back on quality.
The economic impact was soon apparent. With SCA and SCA+ grade growing since 1980 at a compound annual rate of 13.3 percent, compared with LWC's modest 3.3 percent rate, the new supercalendered product is poised to completely dominate this arena by the year 2000.
Making the biggest single bet--over $500 million dollars--on the future of SC paper is Stora North America. A new SCA+ paper machine will be coming on-line in April 1998 at Stora's new Port Hawkesbury (Nova Scotia) facility. Stora PM2, as it is called, will eventually put 385,000 new tons of supercalendered paper into the market.
"Surprisingly, most of our early purchase commitments are not primarily from the retail flyer markets, as we were expecting, but from magazine publishers and printers," reports Joseph Tesone, senior vice president of Stora North America (Stamford, CT).
Given that the forecasts of economic consumption in these parts of the U.S. economy range from about three percent to five percent and that Stora PM2 will only put 175,000 actual tons into the market in its first calendar year of operation, Tesone does not expect anything dramatic in terms of the supply/demand equation for this area.
In practical terms, this development may mean that publishers will soon be able to specify a paper that both increases yield and lowers postal costs--say, a 33-lb. SC grade for a 34-lb. LWC grade.
Shops specializing in retail circulars, mass-market catalogs and directories will want to know that quality improvements also are affecting the uncoated groundwood products, such as soft-nip calendered printing papers. A prime example is Alliance Forest Products' Paper Machine No. 5 (PM5), which started up a few weeks ago at its Dolbeau mill in northern Quebec. The company claims its new SNC+ generation of soft-nip calendered papers offers advantages over traditional SC papers, primarily in retaining greater opacity and improved bulk through the calendering process. (Higher opacity levels allow for higher brightness papers or lighter weight papers alternatively, without also increasing showthrough properties. Bulk ensures a more substantial feel to the printed piece, as well as reduced waste in high-speed inserting and sorting.)
Finally, while american printer has recently examined the new world of paper distribution (see "Paper, Paper Everywhere," October 1997), it's worth noting a trend in paper distribution that is making life easier for commercial printers: the automated paper distribution center.
One of the fancier examples is Fraser Papers' International Distribution Center (IDC) in West Chicago. This $3 million upgrade project transformed two conventional paper warehouses into one "smart" warehouse that allows Fraser to sell "down to the carton," while shipping around 100,000 tons annually.
Time compression is the key element in delivering several new benefits to customers, says Russ Puppe, director of operations for the IDC. That means a longer and later time window for orders, highly accurate order fulfillment and real-time updates for inventory counts (as opposed to the quarterly inventory process Fraser used previously).
The bottom line: In relatively stable markets, the customer has a better opportunity to strike a real win-win deal. With all the competition between products currently and the aggressive partnering opportunities coming from the mills themselves, it makes sense to ask your paper merchant to keep you informed on any new service or product enhancements coming in 1998. It might just turn a good year into a great one.
Taking the broader view, paper prices are being affected by a general trend toward deflation in commodities and raw materials, states Mike Paslawskyj, vice president of economic research with the CIT Group. Thus his group expects 1998 prices in general to remain stable, with perhaps some downdrift.
Add to that the annual American Forest & Paper Assn.'s (AF&PA) recent forecast of minimal paper capacity growth--a mere 1.3 percent over the next three years--in the paper industry. By comparison, capacity growth has averaged 2.0 percent over the last 10 years.
Terry Brubaker, an AF&PA vice president, notes that while U.S. capacity is slowing, aggressive capacity may be coming on-stream from Asia, largely due to the elimination of tariff protections in those markets.
Against that backdrop, here's the view on major paper grades from John Maine, a vice president with Resource Information Systems Inc. (Charlottesville VA), a forest products research group:
Coated Groundwood: "It should be an extremely tight market throughout 1998. The impact of Asian product we expect to be negligible, with supply/ demand factors dominated by the North American and European markets. We have no new capacity coming on-line this year in North America."
Coated Freesheet: "This will be a significantly looser market than coated groundwoods. We're coming to the end of a capacity expansion that ended in late 1997. It included the startups of some new paper machines in Europe--which are still getting up to speed but that will steadily increase overall capacity."
Uncoated Freesheet: "Here's a market that will be impacted by Asia's large production capacity. Look for Asian product in the U.S. market at cheap spot prices. The current financial crisis in Asia is pushing pulp prices down and that factor--which correlates to this market--means potential for slackness in uncoated freesheet prices for 1998."
Uncoated Groundwood: "Lots of potential grade-switching on the horizon here. A number of high-quality magazine publishers are already testing or have switched to super-calendered A+. One example: the December 1997 issue of McCalls, printed on European SCA+. Getting the new super-calendered papers to behave well on heatset offset, not just gravure, is still an issue but a trend toward higher grades of SCA over LWC is clearly underway."