North American Graphic Papers Price Methodology
For the graphic papers market in North America, RISI publishes two separate price estimates. One, which traditionally has been published in Paper Trader, reports a single point estimate for the prices of major grades of graphic paper. The other, traditionally published in Pulp & Paper Week, reports a range estimate (high and low, which are occasionally the same) within which the large majority of transactions are believed to have occurred. This document describes the methodology used for these price estimates—herein referred to as the Point Estimate (PE) and the Range Estimate (RE).
The PE and RE surveys were developed independently when Paper Trader and Pulp & Paper Week were parts of different companies. The PE survey has traditionally been conducted by RISI economists associated with Paper Trader, and PE has been the pricing concept used in RISI forecasts. The RE survey has traditionally been conducted by news editors associated with Pulp & Paper Week. The methodologies that developed for each are very similar but not identical. Because of the need to maintain continuity in a pricing series over time, most of the differences in methodology will be maintained. Important differences in methodology are noted below.
Going forward, economists and news editors will share and compare information regarding survey results, thus increasing the amount of information used to determine both the PE and the RE. This sharing of information will be limited, however, in cases in which a confidential relationship exists between the surveyor and a respondent.
Determination of Point Estimates and Range Estimates
All price discovery methods, no matter how statistically rigorous they claim to be, run the risk of being "gamed" or undermined by survey responders, through means such as selective reporting of transactions or misreporting of prices. Even a process that is based on a weighted average of actual invoices can be manipulated if respondents report transactions selectively (that is, non-randomly).
RISI's price estimation methodology addresses this problem in two ways. First, prices are collected from both buyers and sellers in an attempt to balance out potential bias from respondents. Second, our methodology allows the economist or news editor who is doing the survey (hereafter, "the surveyor") a small degree of latitude to supplement the survey results with other information in order to arrive at the price that best represents market conditions. The surveyor, for example, can use his or her best judgment in assigning more weight to responses from those survey participants who have been the most reliable sources for pricing in the past. That the surveyor is allowed judgmental latitude in estimating prices is an especially important point to note for the PE survey—point estimates are not arrived at using a fixed calculation or weighting scheme. (Larger transactions are given more weight than are smaller ones, however, which is consistent with the concept of a weighted average.) Application of expert judgment based on years of reporting on and studying these markets has been one of the keys to achieving the quality and acceptance of RISI's price estimates.
Where survey information is limited due to small size of the market, or when there are substantial conflicts in the information provided by survey respondents, the surveyor will factor non-survey information into the estimate. Such information can include current supply and demand fundamentals, historical relationships between product prices over time, and information as reported by companies to the media or in financial reports.
Revisions to the prices are made infrequently, in the event of new information becoming available or when there is an ex-post revision or adjustment to prices by the parties. Retroactive rebates or the invocation of "baisse" clauses in contracts, for example, may trigger a price revision. The window for price revisions is one month for the PE. There is no limit on the window for revisions to the RE.
Survey Procedure
Upon joining the survey pool, a respondent is asked to disclose the specification of the products that they actively buy or sell, the average monthly volumes involved, the nature of the transactions that they engage in (spot or contract, indexed or open market), and whether any special terms or conditions must be considered in comparing his or her reported prices to others collected in the survey. This information is used by the surveyor to put the respondent's monthly responses into perspective and is updated periodically.
The PE survey is conducted usually in the fourth week of month. For the RE, the survey is usually conducted in the week before the third Monday of each month. Most contacts with survey respondents are made by phone. Some are made by email. Participants in the survey include both buyers and sellers of paper. Agents and brokers are included, in most cases as sellers.
The amount and type of information that a respondent provides each month varies across individuals and companies. In the ideal case, the respondent provides a number of prices for various transactions that occurred during the month, along with the volumes involved in each and any special terms. Other respondents report a single average number for the month for each grade of paper. A small minority will report only changes in price level from the past month's value. All of these responses will be taken into consideration by the surveyor.
The mix of buyers and sellers varies by product, but an effort is made to adequately cover both sides of the market. The number of respondents varies by product but is always sufficient to determine a representative price for the month.
Key Differences in Transaction Specifications
Both PEs and REs reflect "business to business" transactions, not final retail sales of converted paper products to small consumers. In either type of survey, the smallest transaction size that would be considered might be as low as one truckload, but not lower, with some minor exceptions. Significant differences exist between the PE survey and the RE survey in terms of the point in the supply chain at which the information is collected, and these differences should be noted carefully.
In the case of the PE survey, almost all estimates are for transactions in which the seller is a merchant, a broker, or a paper producer that does direct business-to-business sales. The exception is cut-size copy paper. For copy paper, the PE reflects the price paid by a merchant, a broker, or a large direct buyer, such as an office supply superstore, when buying from a copy paper producer. It is important to note that in all these cases, the PEs are net of discounts or rebates for quantity, fidelity, and related concepts. Spot transactions are included along with contract transactions, but spot volumes are typically only 5%–15% of the total market size, depending on the product.
In the case of the RE survey, almost all estimates are of the price paid to the paper producer by a merchant, a broker, or a large consumer (or co-op) that buys directly from the producer. Unlike the PE, the RE is quoted before usual customer-specific discounts are applied for reasons such as fidelity or size of purchase. Spot transactions are included along with contract transactions, except for newsprint for which spot transactions are excluded.
Other Transaction Specifications
Arm's-length transactions: Only transactions between non-affiliated parties are included in the survey. To be included in the survey, a transaction must be conducted at "arm's length." Prices for internal transfers between units of a company are excluded from the survey.
First-quality tonnage: Prices are for all first quality tonnage sold, whether sold on a spot or contract basis.
Distressed transactions: Distressed or unusual transaction are not included in the price
Shipments in current month: PEs are for shipments in the current month, or where shipment is not possible in the current month, in the next month only. Confusion often occurs about when a price increase/decrease takes effect (for example: with the date of order or the date of shipment). The surveyor tries to use the date of shipment, though this is sometimes not easy to determine. Many buyers get price protection through contracts that extend over more than one month; in this event, the "grandfathered" prices will be reflected in the price estimate (that is, a price increases would take more than one month to be fully reflected in the price estimate). Thus, the price level at which all new sales for immediate shipment are made may be higher or lower than the point price estimate, depending on market conditions.
Terms of payment: Price estimates assume normal and customary payment terms. When reported transactions involve cash discounts, or discounts for payment within a shorter-than-normal time period (usually 10 days), the surveyor makes an adjustment to the reported price to make it comparable to transactions with normal and customary terms.
Delivery: Prices are delivered prices within a standard delivery zone in North America. Any surcharges that a customer pays for additional freight because of his location or drop-off requirements are not reflected in the estimated price.
Specification changes: These descriptions are of RISI methodology as of 2006. The prices series involved are up to 20 years or more in length. In the earlier years of these surveys, somewhat different specifications may have applied.
Physical specifications: See Appendix
Circularity
RISI price estimates are used within the industry for many purposes, including setting prices for contract transactions in which both parties choose to tie the transaction to an index. RISI is aware that a fraction of transactions in the market are tied directly to its the point price estimates. In theory, this raises concerns about circularity of the survey process.
For this reason, RISI's policy is to survey only for transactions that are conducted in the open market; i.e., that are not tied to the price index itself. Some respondents are involved in both open market and "indexed" transactions. In these cases, information is collected only for the open market transactions.
Auditing
Because they involve confidential sources and require the application of the judgment of the surveyor, the surveys are not audited by an outside party. RISI has instituted internal management controls to check on survey methodology and accuracy.
Non-Disclosure of Information
All RISI price surveys are confidential. Names of individuals and companies participating in the survey are never disclosed to the public or to other survey participants. RISI's policy is to neither confirm nor deny either directly or indirectly the participation of any individual or company at any time. Confidential or proprietary information that is collected as part of the survey process, including prices reported by individual survey participants, is not shared with the public or with other survey participants.
Absence of Financial Interest
RISI recognizes that in the normal conduct of their jobs, its employees may have access to confidential or proprietary information regarding companies or markets. RISI prohibits its employees who conduct price surveys from having a financial interest in companies whose values are directly and substantially affected by prices they report. Excluded from this prohibition are holdings in mutual funds or other diversified portfolios that might include financial assets related to such companies. For example, if an employee is involved in a price survey for newsprint, he or she may not directly hold financial instruments issued by newsprint producers or newspapers, because the price of newsprint substantially affects the values of both the producing and the consuming companies. The employee however could invest in mutual funds or other diversified financial instruments that include some of the above-described companies. Also prohibited is a financial interest in any financial instrument that derives its value substantially from the reported prices of products included in the survey.
Commercial Usage
RISI price estimates are copyrighted information. Any commercial use, including hedging or settling of contracts or trades, requires a subscription. For more information, please contact info@risiinfo.com.
Disclaimer of Warranty
Although RISI collects information from sources who are believed to be reliable, RISI does not warrant or guarantee the accuracy or completeness of its price estimates. Actual transaction prices will often vary from the estimated level.
APPENDIX: Physical Specifications
1. Paper Grades in the North American Graphic Paper "Point Estimate" Price Survey
Newsprint
Basis Weight: 48.8 gsm (30 lb.) and 45 gsm (27.7 lb.)
Brightness ISO: 57–60
Reels/sheets: Reels
Fiber furnish: Virgin or recycled or combination
Delivery zone: East and West U.S.
Coated Mechanical Paper
Basis Weight: 34 lb. and 40 lb. (25 x 38)
Brightness GE: 71–74 (No. 5)
Reels/sheets: Reels
Fiber furnish: Virgin, may have small recycled content
Delivery zone: U.S.
Basis Weight: 50 lb. (25 x 38)
Brightness GE: 75–82 (No. 4)
Reels/sheets: Reels
Fiber furnish: Virgin, may have small recycled content
Delivery zone: U.S.
Coated Freesheet Paper
Basis Weight: 60 lb. (25 x 38)
Brightness GE: 82–86 (No. 3)
Reels/sheets: Reels
Fiber furnish: Virgin, may have small recycled content
Delivery zone: U.S.
Basis Weight: 80 lb. and up (25 x 38)
Brightness GE: 91 and up (No. 1)
Reels/sheets: Sheets on Skids
Fiber furnish: Virgin, may have small recycled content
Delivery zone: U.S.
SC Uncoated Mechanical Paper
Basis Weight: 35 lb. (25 x 38)
Brightness GE: 68–75
Reels/sheets: Reels
Fiber furnish: Virgin, may have small recycled content
Delivery zone: U.S.
Uncoated Mechanical Directory Paper
Basis Weight: 22.1 lb. (24 x 36)
Brightness GE: 59
Reels/sheets: Reels
Fiber furnish: Virgin or recycled
Delivery zone: U.S.
Uncoated Woodfree Std. No. 4 Copy Paper
Basis Weight: 20 lb. (17 x 22)
Brightness GE: 92
Reels/sheets: Sheets Boxed on Pallets
Fiber furnish: Virgin
Delivery zone: U.S.
Uncoated Woodfree Commodity Offset
Basis Weight: 50 lb. (25 x 38)
Brightness GE: 92
Reels/sheets: Reels
Fiber furnish: Virgin
Delivery zone: U.S.
2. Paper Grades in the North American Graphic Paper "Point Estimate" Price Survey
Newsprint
Basis weight: 30 lb. (48.8 g/m2) and 27.7 lb. (45 g/m2)
Brightness ISO: 58–60
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
Uncoated Mechanical
White directory
Basis weight: 22.1 lb. (40 g/m2)
Brightness ISO: 60
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
MF (machine-finished) offset
Basis weight: 35 lb. (56.9 g/m2)
Brightness ISO: 65
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
Supercalendered SC-A
Basis weight: 35 lb. (56.9 g/m2)
Brightness ISO: 68
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
Supercalendered SC-B
Basis weight: 35 lb. (56.9 g/m2)
Brightness ISO: 65
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
Coated freesheet publication paper
No. 1
Basis weight: 70 lb. (263.2 g/m2)
Brightness ISO: 85–96
Reels/sheets: Sheets
Fiber furnish: Virgin
No. 3
Basis weight: 50 lb. (74 g/m2)
Brightness ISO: 80–82
Reels/sheets: Reels
Fiber furnish: Virgin
No. 3
Basis weight: 60 lb. (88.8 g/m2)
Brightness ISO: 80–82
Reels/sheets: Reels
Fiber furnish: Virgin
Coated mechanical publication paper
No. 4
Basis weight: 50 lb. (74 g/m2)
Brightness ISO: 74–79
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
No. 5
Basis weight: 34 lb. (50.3 g/m2)
Brightness ISO: 74–79
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
No. 5
Basis weight: 40 lb. (59.2 g/m2)
Brightness ISO: 74–79
Reels/sheets: Reels
Fiber furnish: Virgin and recycled
Uncoated freesheet (uncoated white)
Repro bond (cut-size copy paper)
Basis weight: 20 lb. (80 g/m2)
Brightness: 92 GE
Reels/sheets: Reels
Fiber furnish: Virgin
Offset
Basis weight: 50 lb. (70 g/m2)
Brightness: 92 GE
Reels/sheets: Reels
Fiber furnish: Virgin
Trade Book
Basis weight: 50 lb. (70 g/m2)
Brightness: 92 GE
Reels/sheets: Reels
Fiber furnish: Virgin
Form bond (stock tab)
Basis weight: 20 lb. (80 g/m2)
Brightness: 92 GE
Reels/sheets: Reels
Fiber furnish: Virgin
MOCR laser bond
Basis weight: 20–24 lb. (80 g/m2)
Brightness: 92
Reels/sheets: Reels
Fiber furnish: Virgin
Cotton Bond (premium)
Basis weight:
Brightness: 92
Reels/sheets: Sheets
Fiber furnish: 25% cotton content
Other
Carbonless (coated backside)
Basis weight: 15 lb. (56 g/m2)
Brightness: 92
Reels/sheets: Reels
Fiber furnish: Virgin
Bleached bristols (C1S index)
Caliper: 10-pt
Brightness: 92 GE
Reels/sheets: Reels
Fiber furnish: Virgin