Weathering a Stormy Paper Market Forecast
The dollar is almost certainly going to continue its swoon, so don’t look for much help from Europe. Asia, however, appears to be another matter. The currency problem is just as nasty against the yuan, but China and Indonesia have shown a strong interest in cracking our mighty market.
Will shipping Chinese paper across an ocean and half a continent fix things? Not so fast. The price of pulp is higher in Asia, where fiber sources include imported pulp. Asian mills began introducing their wares at startlingly low prices, but have steadily edged upward and no longer look like a bargain. The currency exchange problem and the threat of a future tariff all suggest that Asian papers will not radically alter our paper landscape.
Our ace in the hole, it’s sad to say, is a continued drop in demand that forces mills to choose between cutting still more capacity and selling at prices more favorable to buyers. Needless to say, a drop in demand comes along with lots of other depressing baggage, including the sight of publishers falling by the wayside. But those who remain strong may be able to reap benefits. In other words, the publishing market may experience its own shakeout, courtesy of rising paper prices—and let’s not forget the hike in distribution costs that completes the one-two punch.
The major question is not how much mills may raise prices, but how gradually. If private-equity thinking leads the way, we may see a steep curve upward, sharp enough to kick some buyers out of the market, or constrain growth. The resulting drop in demand could kick right back at the mills. If mills take it slowly, they might end up with both profits and customers.
Prepare for more increases this year, inventory your specifications to see if you can change what you buy, and pay attention to your supplier relationships to keep the paper flowing. These are challenging times, but smart paper buyers will survive them.