D. Eadward Tree's 2015 Postal & Paper Price Forecast
Lufkin notes that North American capacity for making coated-groundwood paper is now "exactly half of what it was" in 2004, as is customer demand. He believes that, long term, the shrinking market is bad news for publishers.
Paper prices tend to ride a cyclical roller coaster, but the high points and low points have been remarkably similar for the past couple of decades, he notes. In other words, over the long haul paper buyers have been immune from inflation.
Paper mills, of course, faced rising costs for labor, energy, chemicals, etc., but the industry's investments in new and refurbished paper machines increased the efficiency of paper manufacturing. I explained what those investments meant for paper pricing in my article "Weak Demand Will Mean Higher Paper Prices": "The result was that mills couldn't just pass along their cost increases to customers; there was always a competitor with a shiny new machine and efficient cost structure that was happy to take on customers at a slightly lower price."
But Lufkin now sees a different landscape for the industry: "They haven't added a new machine in a long, long time," he says of the paper makers. With mills making little investment in increased efficiency, future "down" markets are likely to lead to machines being idled or shut down before prices go as low as they have in the past.
The one piece of good news for publishers is that a global oversupply of petroleum seems likely to keep inflation in check for awhile.
Update: For more recent info on 2015 paper pricing predictions by D. Eadward Tree, check out his blog.
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