State of the Printing and Paper Markets
More of the same old prophecy: expect prices to rise. But this time around, there are differences in the reasoning. Currently the paper manufacturers are trying to pass along price increases based on their financial requirements, rather than higher demand, which has been the historical reason for increases.
Publication-grade papers have been selling well below their 10- and 20-year averages.
The mills aren't selling at a profitable rate, and they need to increase prices. They're attempting to ratchet up prices even though demand doesn't warrant it. The foreign market is suppressing increases in domestic demand with lower priced stocks. Yet North American mills desperately need to sell paper at higher prices, and are attempting to do so.
What's happening behind the scenes is even more telling. Over the past 10 years, domestic manufacturers have merged and consolidated. There are fewer players than ever. Even though the same number of brands are available, these brands no longer compete; rather, they are now 'sister' stocks offered at the same price, minimizing price pressures.
The domestic and foreign companies have grayed. As in the automobile industry, where Japanese models are made in the U.S. and vice versa, the paper markets have become integrated. Foreign companies now own many North American mills, and so competition between the two has become more controlled.
Also, mills and machines have been shut down, so there are fewer surpluses, even in a down period. In the past, when demand was low, mills continued to produce paper, because it was very expensive to turn equipment off and on again. This contributed to unwanted surplus. Today they shut the equipment down, and don't feed the surplus.
Another difference today: when demand increases, there won't be excess surplus to make a smooth and gradual increase in the market. Paper prices will increase as fast as the mills can get away with it, because demand will be greater than surplus.