Paper Outlook for Q2 — Prices Holding Through Spring

Not long after revelers congregated in Times Square to watch the ball drop, signaling the start of 1998, paper prices reflected the first increase of the new year.

"It was three dollars per hundred weight or roughly 6.5 percent on a typical 40/45 lb. number four or five sheet," relates Bruce Janis, president of MSPGA: Management Science for the Publishing and Graphic Arts, of the first-quarter jump.

The increase was an anticipated reflection of a continued strong economy. "What's happening is that we came off a very strong fourth quarter. The first increase of '98 is holding," reports Janis.

Bob Allen, manager of purchasing and scheduling at Banta Kansas City, concurs. "On Jan. 1, we received a significant increase on [gloss coated] groundwood in the 5-percent range," he observes. "You've got upward pressure on pricing on the groundwood side attributable to no new capacity of any significance planned."

The same can't be said of free sheets, according to Allen. Prices for those grades haven't budged.

"Late in the year, there was some conversation that free-sheet suppliers would be looking to increase," Allen notes, "but that seems to have fizzled out at this time."

Holding Steady
For the present, there appear to be no supply or stock out issues with which to be concerned. And with advertising pages and page counts continuing to be very strong, Allen expects the January increase to hold until the summer. However, no new increases should come this quarter.

"If I had to guess right now, the next increase won't be until July 1," Allen says.

Edward Murphy, vice president of commercial services for Hollywood, FL-based St Ives, also reports that the increased prices are holding—but he hopes for a small slip in groundwood pricing.

"I see the potential for a little slide on the groundwood market on into the second quarter as backlogs are reducing," he reports. "I'm hoping for a moderate slide prior to the fall catalog season."

He's not as confident concerning free-sheet pricing. "I think free sheet will stay where it is," he says. "The upcoming annual report season is short-lived—it won't be enough to sustain any further increases."

Janis isn't banking on any changes this quarter. There aren't enough factors to warrant more price hikes. However, the mills are in a strong enough position to maintain prices established last quarter.

"There isn't any softness out there—it's a strong paper market and a strong publishing market," summarizes Janis.

And a strong economy, for the moment—which is why the gradual increases have not been a noticeable cause for any concern. "As long as revenues can keep up with the increases on the cost side, you're not going to see a panic, and revenue has kept pace," explains Janis.

According to Janis, January's increase brings the calendar annual increase to 12 percent over and above the prior 12-month period.

Additionally, Janis observes that there is no great clamor for a move to short-run, cutoff presses—a sure sign that people are concerned with saving on paper costs.

Why the lack of worry? Possibly because printers may be focused on other pertinent issues, such as an overwhelming lack of available labor and rising labor costs.

Since the hikes have been incremental, they may appear non-threatening. However, it is advisable to keep a sharp eye on price increases—no matter how small.

Cautious Forecasting
"Given the competitiveness of the printing industry and the degree of pressure on profitability, even seemingly modest increases in key operating costs like paper can be a problem in the industry," explains Andrew Paparozzi, chief economist for the NAPL (National Association of Printers and Lithographers.)

"[An increase in paper pricing] is something the industry needs to be aware of—it's not a case where you can easily pass increases on to clients," notes Paparozzi. "You pass it on or offset it by productivity gains, or it comes right out of the bottom line."

According to MSPGA data (see above chart), increases are being passed on to customers—who are having to reach a bit deeper into their pockets thanks to the increases.

One thing seems nearly certain—printers and publishers can expect more than fireworks come July. "The best indications suggest that there won't be another increase until July—but there will be an increase in July. Publishers ought to budget another 10 percent on top of the July increase," Janis advises.

—Carolyn R. Bak

Database Tracks Inventory Levels

Looking to be in the know regarding paper inventory levels across the United States? The new Paper Inventory Database program from the Graphic Communications Association (GCA) provides hard data on roll paper inventory trends, thus enabling magazine and catalog publishers, printing companies and paper mills to make intelligent buying and production decisions based on up-to-date, industry-wide inventory levels.

GCA's Paper Inventory Database offers monthly reports on data sent electronically from some 60 printing plants across the United States. The data represent up-to-the-minute inventory levels at the participating printers for five categories of publication grade paper: coated groundwood, uncoated groundwood, coated free sheet, uncoated free sheet, and all others.

GCA then tabulates the data and provides a monthly report to participating companies and subscribers with the total inventories for these categories, as well as trends for each category over time.

"We now know that the surge in paper buying in 1995 was caused not by a jump in consumption demand, but by an increase in anticipated demand against forecasted supply, and a desire to avoid expected future price escalations," says Norman Scharpf, president, GCA.

"As a result, inventory levels got out of hand, buying stopped, and prices dropped in the second half of the year. Many buyers were saddled with inflated inventories at inflated prices that took months to work down, with many paper companies feeling the effects. Clearly, this is not the way the paper market should operate."

GCA's Electronic Data Interchange committee directed creation of the Paper Inventory Database. An advisory group of representatives from paper mills, printing plants and magazine publishers assists in developing the measures and reports. Call (703) 519-8173 or visit GCA's Web site at www.gca.org/invent/index.htm for more information.