2009 Paper Prognostications
Blake Hutchison, Director of Purchasing
Recently, I was asked a series of questions about the paper market and where it is heading in the near and long term. I thought I would share some of my answers with you.
Q: What do you see as far as paper prices for the first quarter?
A: I see paper prices as a whole going back down to the levels we saw during the 2nd quarter last year. That would mean a drop of about $40-$60 ton overall. Coated groundwood will drop faster and perhaps farther than coated freesheet will. But how much depends on where supply and demand are.
Q: How would you describe the current conditions in the market as they relate to paper prices, supply and demand?
A: Right now, demand has dropped MUCH faster than the coated mills can cut their production and inventory levels. This has led to shorter than normal lead times, excess inventories, and reduced prices across the board. Since most, if not all mills are still not turning a profit (despite such dramatic price increases over the last six quarters), I believe they will try and hold the line on price. In order to do this, they will attempt to reduce capacity to a point more in line with demand. This could be very tricky, as demand continues to decrease at a rapid pace with no apparent bottom in sight.
Q: Are there any issues affecting paper production (labor issues, unexpected demand, seasonal changes) that has occurred or might occur in the near future?
A: The economy has slowed so quickly that there has been a huge decrease in demand as compared to last year. Advertising pages are down, circulation is down, page counts are down, and in some cases, entire print projects have been cancelled. These results have caused the mills to rapidly react. Their reactions have been the shutting down of machines, pulp facilities, and even whole mill production facilities. In addition, there have been numerous sawmills that have been shuttered and more continue to close, decreasing the amount of pulp in the system. The most surprising thing to me is that even through all of it, demand is still lower than supply. This is the main issue affecting production today, and the one that drives the mills actions for the near term.
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