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Feb 1, 1999 12:00 AM
Maybe you saw this cartoon in the Wall Street Journal: "Just tell me Norm," pleads a CEO to his CFO in a conference room bristling with complicated financial charts and bar graphs. "Are we doing good or bad?" The same applies to the paper market--you can pore over pulp production, inventory reports and global economic conditions, but most printers are itching to cut to the chase. Is it going to be a good year or a bad year for paper?
"In 1999, prices will probably continue to fall for the first half," responds Dan Temple of Jacobs-Sirrine Consultants (Atlanta). "There should be a plentiful supply of all types of paper. Longer term, you have to look at Asia and get the world economy on track--the world economy tightens up paper and leads to spikes."
Bruce Kirk, industry analyst and author of Outlook for Printing and Writing Papers 1999-2001: A Decade of Transition, concurs. "1999 is likely to be another difficult year--at least from the perspective of the paper industry. Worldwide real GDP growth rates are forecast at slower rates as compared to 1998 and Asia will remain a drag on world growth. Slowing real GDP growth traditonally translates to slower paper demand and such is forecast for 1999 and perhaps into 2000."
Kirk cautions that a pickup in the rate of economic activity later in the year may foreshadow higher prices beginning in 2000-- "given that pricing usually lags economic recovery. One harbinger of paper pricing is market pulp. Market pulp pricing is now struggling to stabilize at low levels but real strength and strong price recovery is some distance away."
Temple predicts increased imports. "The European publication paper market is really geared up to go into the North American market," submits the consultant. "There's an oversupply of publication papers--it's too much for Europe to consume. The North American market is definitely a target, especially with the dollar being as strong as it is."
"Paper imports soared during 1998 due to high prevailing relative U.S. dollar exchange rates during the year," recounts Kirk. "Imports are expected to climb during most of 1999 and exports will remain depressed. Import volume from Canada is most prevalent: uncoated free sheet from Asia is a new force and will climb during 1999 and during subsequent years. Of course, European exports to Asia have declined and some of this volume is headed to North America."
Domestically, the American Forest & Paper Assn.'s (AF&PA) latest capacity survey predicts the next three years will be the slowest on record. The survey, which reports actual capacity for 1997, estimated capacity for 1998 and expected expansion for 1999-2001, anticipates capacity increases to an annual average rate of 0.9 percent in the 1999-2001 time period. (Capacity increased an estimated 1.2 percent in 1998.)
"The forecast essentially repeats the one made a year earlier," notes Kirk. "During 1998, only one new paper machine started in the U.S.--an uncoated machine by Willamette Industries. Canadian capacity growth is also forecast at low rates. "In Canada, a new supercalendered machine was started by Stora North America in 1998. There are no new machines on the drawing boards through 2001 in either country and it appears likely that there will not be any major machines until perhaps 2002-2003."
The analyst further points out that some larger producers are rationalizing capacity. "Consolidated Papers and Mead are reallocating lightweight coated capacity among mills that were acquired. International Paper closed several machines/mills and its integration of Union Camp's capacity will take place during 1999-2000."
According to the AF&PA survey, uncoated groundwood capacity is expected to increase by 62,000 tons in the next three years--that's less than one percent a year. Most of this growth is attributable to planned capacity swings from newsprint to uncoated groundwood by a few companies. Coated groundwood capacity is expected to remain flat through 2001.
Coated free-sheet capacity is forecast to grow by a total of almost 282,00 tons, or an average rate of 1.7 percent. "The rate of increase has dropped considerably from last year's survey because nearly all the firms that scheduled capacity expansion have cut back in this year's survey," explains AF&PA. "Uncoated free sheet capacity is scheduled to rise by an average of 0.7 percent a year during the three-year period, far below the 2.1 percent average annual rate during the 1989-1998 period," claims the association.
To allow for possible restarts, the AF&PA capacity survey does not reflect closed paper machines until at least one year after closure, unless the machine is dismantled. "Over the past decade about five machines have been closed annually--and these are small machines," observes Kirk. "This weeding out process is continuous. Few, if any, of several recently announced closures have been dismantled."
Also, in 1998 paper manufacturers faced new and more restrictive environmental regulations. "This regulatory step-up will directly impact some pulp capacity where expenditures to meet regulations are not economically justified," says Kirk. "It's possible that some further paper capacity may also be closed along with shuttered pulp mills."
Look for supercalendered (SC) paper to challenge markets once dominated by lightweight coated (LWC) and coated free sheet over the next several years. "SC is evolving to SC-A Plus with the new Stora North America machine," reports Kirk. "Others (Consolidated Papers, Madison, etc.) are expected to emulate and upgrade accordingly. This grade is headed for the catalog market and may infringe in certain magazines also. The SC-A Plus will compete with LCW#5 in these markets. SC-A Plus is lower cost and is likely to match basis weight." The analyst predicts the development of new fillers to lift LWC#5 brightness (as well as its competitive position) in 1999. (For more on supercalendered developments, see "SC's Rising Star," September 1998 American Printer.)
As mills consolidate and national distributors such as xpedx and Unisource grow, industry pundits have debated the consequences. Some predict fewer mills will eventually be producing fewer paper grades while others anticipate an influx of value-added services as mills and merchants scramble to win business from the graphic arts industry as it consolidates, too. In the short term, however there's no shortage of paper choices and innovative customer service ideas.
Specialization has been a successful strategy for some smaller mills. "We're putting a lot of emphasis on our digital papers," reports Mohawk's Beth Povie. The Cohoes, NY-based mill's line of multipurpose papers can be run on both digital and offset presses-- "so the printer doesn't have to learn a new technology," says Povie.
"We've made a conscious decision not to be all things to all people," says Jack Zanzig, Finch Paper's vice president of sales and marketing (Glen Falls, NY). "Opaque is our business . . . other mills have tended to jump in and out of the market based on business conditons. We're here to stay. We have the brightness, smoothness, opacity and the formation to go head-to-head with many of the coated sheets out there."
"Mills build loyalty when they take the time to provide answers for printers," declares Jeffrey Morgan, vice president of sales and marketing, Yupo Corp. (Chesapeake, VA). "We believe the most important value-added service is to provide responsive, high quality customer service. It is important not to overlook the value of personal client contact." Yupo's 160,000-sq.-ft. synthetic paper mill opened last fall.
Westvaco credits its direct sales approach with helping it develop a closer relationship with customers--"from the owner to the press operator to the loading dock foreman," according to Kevin G. Clark, national sales and marketing manager, fine papers division. "As one of the only major paper manufacturers to market its coated fine papers directly, we provide our customers with the appropriate level of inventory support. For example, our National Customer Informaton Center (Richmond, VA) consolidates our customer service, production scheduling, and inventory and distribution operations in one location. We can provide printers with up-to-the-minute informaton on orders, shipping dates, production runs, pricing and inventories."
Peter Schaeffer, president, Case Papers, agrees that service and quick turnaround are the keys to remaining competitive. "Printers don't want to keep a lot of inventory on hand," relates the exec. "They want exactly what they need and not one sheet more. We keep it on the floor in our possession, as opposed to a warehouse somewhere. If you can get quick turnaround, you can wait until the last minute to buy."
"Perhaps the most valuable service a paper supplier provides is special warehousing and quick delivery provisions," suggests Rich Chapel, director of corporate communications, Fraser Papers. "We work closely with the paper merchants that supply the financial printing market. Financial publishers frequently require paper within 24 hours of their order and sometimes in as quickly as eight hours. Since SEC documentation and shareholder communications typically call for a specialty grade, our Financial Printing Program is an important element in assuring the availability of paper."
"Years ago, customers wanted a good deal on a standard product," adds Colin Carroll, a business analyst with International Papers coated papers group. "Now, they're focusing on total cost--looking at running waste and inventory and asking for a specific product, service or solution. We're moving toward customization--and with our resources we can make whatever our customers need."
IP also keeps a close eye on press technology. "Next week, some of our coated paper executives will be meeting with a major press manufacturer to coordinate product development," reports Carroll. "We want to know what the next generation of presses will look like. Printed products get better every year and paper products have to keep up, too."
Looking for a new tool for tracking roll paper inventory trends? Try the Paper Inventory Database. Compiled by the Graphic Communications Assn. (GCA), the monthly reports are based on data sent electronically from 61 printing plants across the U.S. Up-to-the-minute inventory levels at these plants are provided for coated groundwood, uncoated groundwood, coated freesheet, uncoated freesheet and all others. GCA then tabulates the data and provides a montly report to participating companies and subscribers.
"We don't try to forecast anything," explains GCA's Alan Kotok. "It's a snapshot of total inventories. At the end the month, subscribers look at the trends and draw their own conclusions." For more information, call GCA at (703) 519-8173 or see HYPERLINK http://www.gca.org www.gca.org.
Groundwood pulping provides a high yield of comparatively low quality pulp--hence the term "pulp fiction." Paper with a relatively high groundwood pulp content tends to discolor over time because it includes lignin. Lignin is a natural binding agent, that when left in paper combines with oxygen to form an acid. Newsprint and other papers made from groundwood are quick to discolor and deteriorate. Coating groundwood paper on both side helps retard these effects.
Chemical pulping produces paper substantially free of lignin and other nonfibrous wood components--hence, the term "free-sheet." Since the fibers are obtained by chemically dissolving the lignin, the cellulose fibers are allowed to float free--and are thus longer and stronger than those obtained via mechanical pulping.
Cotton fiber (rag) pulping uses cellulose primarily obtained from discarded cuttings and threads from the manufacture of cotton goods or cotton linters, the post-ginning stuff left on cotton seeds. Historically, cotton fiber papers have been considered to be superior in quality versus papers made from other pulp sources--U.S. currency is made with cotton fiber paper.
Sources: Printing Paper and Inks, Delmar Publishers, Albany, NY; What the Printer Should Know About Paper, GATF Press, Sewickley, PA; Walden's Paper Handbook, Walden-Mott Corp., Ramsey, NJ