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Out of the mouths of printers
by MONICA SHAW
The New Year is upon us, and once again, the pulp and paper industry is looking for a positive turnaround in pricing and demand. Despite such hopes, the outlook is questionable for at least the first half of 2003, according to Pulp & Paper's annual outlook article from the editors of Pulp & Paper Week (see related article). In addition, capital spending will apparently remain low as mills hope to improve their bottom line and avoid the appearance of adding capacity (see related article).
If it's any consolation, the pulp and paper industry is not alone in its hopes for a recovery in pricing and in more investment to sustain its mills. According to a recent article in Printing Impressions, printers want to see healthier paper companies and mills, hoping to develop or sustain key relationships with them.
"BEATEN TO A PULP"? Although the defeatist title of the article focusing on the outlook for paper from a printer's perspective might sound a bit dire, quotes from printing company executives within the article indicate a sound understanding of some of the challenges facing the paper industry. For example, while sometimes scorned by Wall Street, reinvestment in mills is an important consideration for printers looking to develop long-term business relationships that aren't solely based on price. A senior vice president for Quebecor World, a printer, noted that paper manufacturing is "a very capital-intensive business, so paper producers need better market conditions to support reinvesting in their operations and capabilities."
To support healthier paper companies, Quebecor has chosen to narrow the number of paper suppliers it buys from-without being driven to do so by paper industry consolidation. What was a major factor in this choice? "We decided to invest in the suppliers we want to do business with long-term...and it's especially important for us to invest in those companies during tough times," said the vice president.
This relationship building extends to the final user, too. In the center of the supply chain, between a paper producer and, for instance, a buyer of newspaper inserts, Quebecor as a printer can work with both to lower the total cost, which "doesn't always mean getting a lower quoted price." Quebecor's vice president said this might be done by combining roll sizes from multiple customers so that mills can better optimize trim efficiency or through discovering more efficient ways to package and ship rolls.
PRINTERS SEE A DARK SIDE IN LOW PRICES. On the surface, it might seem that printers would benefit from lower paper prices, but digging deeper, this pricing can be the sign of broader economic ills. In the article, a vice president for supply chain management at Banta, another printer, noted the impact of a weak economy on print demand and therefore, paper prices. "We treat paper as a pass-through cost," he said. "As paper prices have dropped, our total sales revenue has dropped."
According to the Banta executive, his company resists the temptation to lock in lower prices through contracts as some printers have done. Instead, Banta takes a "cooperative" rather than an "adversarial" approach with paper companies as does Quebecor, seeking to work with a select group of mills to help them sell their paper.
MORE CHOICES? As for consolidation's effect on prices, the Banta executive commented that his company hasn't "noticed any pricing impacts from mergers among the paper producers, but there are getting to be fewer and fewer paper options available." He also observed that lower prices have not seemed to encourage print buyers to upgrade the stocks they use. However, a trend toward smaller mailings for more targeted audiences has caused some publishers and marketers to improve the quality of what is sent to those customers in anticipation of a better response.
One area in which printers applaud a growing selection of paper products that compete with lightweight coated stocks is the area of supercalendered (SC) grades. "The quality of SC-A has improved, so users can get a similar quality product that throughout the pricing cycle (up and down) will always be on the lower end," said the Quebecor vice president.
These are nice words of encouragement from the mouths of printers, but the key is demand recovery, and the entire supply chain is waiting for it.
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