Paper prices on rise, with no end in sight

CNY Business Journal (1994-95), May 01, 1995 by Fitting, Beth

SYRACUSE--Rising prices for office paper and news print have brought hardship to printers, publishers, and users of office paper nationwide, and Central New York is no exception.

Carol Lane, customer representative at the Syracuse branch of Alling & Cory, paper distributors headquartered in Rochester, confirmed that the price of copy paper, for example, has increased 30 cents per 1,000 sheets, a 74-percent increase since April 1994. "It's driving everybody crazy," she says. "All our invoices read 'prices prevailing at the time of shipment.' We're calling the mills daily for the price. Previously, they would give us a price two weeks in advance. We could order ahead. We can't do that anymore."

General Manager Richard Keene at Eagle Newspapers in Baldwinsville, publishers of weekly newspapers, says the company laidoff three or four people a couple of months ago, partly because of the rising price of newsprint. "No one is talking positive about prices," Keene said. "They'll go up at least until the end of 1995."

Keene asserts that in one year he's seen the price of pulp, from which newsprint is made, go "from $400 to $500 to $600 and $650 a ton. Now they're talking $800." But, he admits, "They're making up for four or five years of losses."

John Bufalini, a salesman at McGrann Paper Corp. of Watertown, who supply newsprint to several local printer lists prices for 30-pound newsprint since March: "On March 1, we were quoted $590 a ton; on April 1, $625 a ton; and on May 1 it's going to $660 a ton."

Allocation is a word causing many in the paper business to flinch. A truck of commodity offset paper, which used to come with an extra allotment sell to new customers, now is strictly allocated to orders on the books. New business has a problem getting paper at any price.

Keith Castle, director of sales at McGrann, reports that the market started an upswing less than a year ago. He adds, "There is less capacity than demand Paper mills are selling [paper] in Europe because the dollar is weak there right now. Scandinavia, a major source of pulp, has cut back shipments to the U.S. So we buy from Canadian and U.S. mills, but the prices are higher."

Castle says that the major suppliers now require two and a half months of lead time. A year ago, they could get orders from the mill in a week to ten days.

Profits at major paper mills plummeted from 1988 to 1993. Net income at Boise Cascade, for example, fell from $289 million in 1988 to a loss of $77 million in 1993. Champion International went from $456 million in the profit column in 1988 to $156 million in the loss column in 1993. Some of the companies are recovering past losses, but the average top company's earning are still negative.

The strong economy of the mid- to late '80s prompted paper companies to build world-class paper machines here and abroad. Then, for the first time since World War II, the world was in a major recession; globally, the demand for printing papers dropped. Due to excess capacity, prices hit an all-time low in the late '80s. Overcapacity in Europe, coupled with the strength of the dollar during that period, caused European paper mills to direct their output toward this country,

U.S. recovery from the recession was slow; dollars were not being committed to the advertising that uses the print medium.

Then the Russian economy, in disarray since the collapse of the Iron Curtain, caused a shortage of the supply of wood pulp in Europe. The European economy began to strengthen at the same time the U.S. dollar weakened. European exports to the U.S. became less attractive. On the other hand, the export of paper became more attractive to American mills. Economic pressures prompted some U.S. mills to take some paper out of production. Mills also began rebuilding inventories, further pressuring the demand side of the equation.

Recently, magazine and general commercial advertising has seen a resurgence in this country, greater than anticipated by the economic forecasters. This adds to the demand for paper and helps push the prices up.

The result of all these factors had been dramatically rising pulp prices around the world, from $400 U.S. per ton in 1993 to over $600 in late 1994. Forecasters were prognosticating a rise to $800 by the end of 1995, but a recently announced increase in the price of pulp, to take effect June 1, to $800 a ton, has caused them to revise forecasts. Some industry spokesmen are suggesting that pulp could reach $1,000 a ton by year end.

And when pulp prices rise, there is a corresponding rise in the price of paper. When will it end? Alling & Cory's Land says, "Maybe by the end of summer." She appears to be more optimistic than most.

McGrann's Castle warns, "Unless the export market becomes less attractive to U.S. mills, and the dollar improves, the trend will continue."