Paper aplenty: the supply of high-quality, favorably priced virgin coated papers is good news for publishers

Folio: The Magazine for Magazine Management, Dec 1, 1991 by Arthur Veverka

The supply of high-quality, favorably priced virgin coated papers is good news for publishers.

The current paper market is a magazine publisher's dream. Demand for coated and uncoated printing papers is off, capacity increases have come on-line, offshore competition has stiffened and prices are down. There is an extensive supply of virtually all grades at very competitive price levels. The prevailing pricing environment has allowed publishers to use higher quality grades of paper while maintaining control over costs.

What drives the market

The magazine end-use sector, represented by consumer, business, trade, comic, TV and Sunday newspaper magazines, makes up close to 38 percent of all coated paper usage. if we consider only coated groundwood, where magazines make up slightly over 50 percent of total consumption, magazines play an even more significant role in determining demand.

Magazines consumed 3.1 million tons of coated paper in 1990, an increase of 21,000 tons from the 1989 level. However, 1991 should show a decrease by about 4 percent, and usage in 1992 should remain at about that same level. That drop-off is most directly attributable to the ad slump. Pages were down for the first six months of 1991 (over an 11 percent drop for first half 1991 in business titles, according to MMS-Rome Reports, and a full 10 percent for Publishers information Bureau-measured consumer magazines, YTD through September), and the second half shows little improvement.

While coated paper gained in popularity, increasing its share of the total magazine-paper market from 76 percent in 1989 to 79.5 percent in 1990, the longer-term trend should show a slight fall-back as interest in European paper technology grows and supercalendered paper (an uncoated grade) becomes even more accepted as an alternative.

In addition to the decline in advertising pages, the following factors also slowed demand:

* Postal rate increases;

* Newly implemented or anticipated taxes;

* A trend toward lighter basis weight;

* Circulation cuts to deliver more revenue per sub;

* Growing use of recycled fiber.

A move to lighter weights

Increased costs due to a 40 percent rise in postal rates and new taxes on magazines are in part driving a trend toward ultra-lightweight coated stock. in the past, few publications were printed on paper lighter than 36 or 34 pounds, but now many magazines are moving toward the 30- and 32-pound categories. These lighter weight papers are gaining acceptability as mills achieve better opacity and improved machine runnability. The major complaint of many advertisers is that the lightweight papers allow too much show-through. This in turn opens a door for supercalendered papers, since they offer the lower basis weights and less show-through at a lower cost level.

Interest, not action, in recycling

At the same time, publishers are being pressured from all sides-by the government and by their readers-to consider the use of recycled paper. Right now, though, the primary demand for recycled paper is coming from magazines that have an environmental slant.

The biggest obstacles to more extensive use of recycled paper appear to be price, lack of availability and poor quality-with price being the biggest hurdle. Once recycled paper becomes an attractive economic alternative, mass-market publishers will certainly look at its use more closely.

Similarly, printers' lack of experience in recycled paper printing will gradually cease to be a problem. Recycled papers' printing performance is not the same as virgin fiber sheets'. As printers' knowledge grows, use of recycled papers will increase, although it's unlikely that recycled products will have any major impact on demand for coated paper over the next two years.

Better quality, lower cost

Higher quality grades will experience the highest growth rates. Offshore producers introducing new grades such as double-coated mechanical) and superior quality supercalendered and lightweight coated papers at competitive prices have become a real boon to North American publishers.

Because of the oversupplied market, many U.S. coated freesheet producers have also upgraded their quality and introduced new grades to boost their competitiveness. In many instances these grades feature characteristics typical of the next higher grade e.g., a #1 grade with #3 qualities), but are being marketed at the lower-grade price. Thus, even publishers working on very tight budgets may now be able to afford to take a step up in paper quality this year.

Inventories high

Although demand for coated paper should increase in 1992 because it is both an election and Olympic year, it will have little impact on shipments. Purchasers' inventories increased in 1990, as many mills attempted to keep their capacity utilization up and storage space clear by pushing excess supply out to the marketplace. Thus, any increased demand will probably be satisfied by existing inventory rather than new manufacture.

The expected increase in the 1992 demand for coated paper is 715,000 tons, or almost 9 percent over 1991 levels. The increase is expected to be spread equally between coated groundwood and coated freesheet papers on a tonnage basis.