Factors such as pulp prices and economic conditions have always influenced paper pricing. But to predict prices in 2001, you also need to take into consideration such factors as increased production of the supercalendered-plus (SCA+) paper grade and the growth of electronic commerce. The former should help keep the cost of coated groundwood and freesheet paper from ballooning, but the latter could actually increase paper demand, and therefore paper prices. (See story on p. 14 for the latest on ’98 pricing.)
New, improved supercalendered Most consumer catalogers have traditionally printed on #4 or #5 coated groundwood, which costs 10%-17% more than the lesser-quality supercalendered (SC) grades. But when prices skyrocketed in ’94-’95, some catalogers switched to SC grades.
Once prices stabilized in 1996, a number of catalogers returned to coated groundwood. Others, finding that the switch to a lesser grade had not hurt customer response, remained with the cheaper alternative. Among respondents to Catalog Age’s 1997 Benchmark Report on Production, four times more mailers used coated groundwood than SC.
But a number of catalogers may switch to SC paper yet again, now that SCA+, which is stronger, smoother, and brighter than other SC grades, is about to be produced in North America for the first time. (Previously SCA+ was imported from Scandinavia.) “The quality of SCA+ is similar to that of #5 coated groundwood,” says John Maine, vice president of printing and writing papers at Resource Information Systems Inc. (RISI), an economic forecasting company, “and yet 10% cheaper.”
In February, Lake Superior Paper Industries, a division of Consolidated Papers, completed a $30 million conversion of its supercalendered machine. In April, Stora North America began manufacturing SCA+ in its Nova Scotia plant.
Typically, a sizable increase in demand follows an increase in availability of domestic SC papers. Already, a number of catalogers are testing the SCA+ grade. Flower cataloger Michigan Bulb Group, for one, tested SCA+ with several of its catalogs over the past year. “The quality difference between SCA+ and coated groundwood is getting smaller, and SC grades in general are getting better,” says vice president of advertising Jim Paauwe. “We’ve seen substantial savings with no difference in customer response on specific titles.”
By 2001, industry observers predict, a significant portion of catalogs will be printed on SCA+. This could force producers of coated groundwood to lower prices to compete.
Just as some consumer catalogers will make the switch to SCA+, a number of business-to-business catalogers, which typically print on SC grades already, will switch to soft-nipped calendered paper (SNC). SNC is less expensive than other SC grades because it’s made with fewer “ingredients” on inexpensive equipment.
Even though SNC has been on the market for eight years, “mills are finally learning how to make the paper better,” says Rex Ciavola, director of print/production for b-to-b cataloger Viking Office Products, which uses SNC as well as SCA and SCB papers. “They’re addressing problems such as smoothness, brightness, opacity, and stretching with humidity.”
Farther afield Catalogers speculated that the 17 Asian mills expected to go online over the next few years would keep the North American paper prices in check. Then, as the Asian economy spiraled downward, many believed that these mills would unload excess capacity in the U.S., again holding prices down at least throughout 1998.
But while demand in Asia for paper has declined, many Asian mills have also put construction plans on hold; nearly half of the mill projects were canceled outright. It remains unclear if the existing Asian mills will have excess paper to unload.
Despite Asia’s reluctance to increase paper capacity until its economy rebounds, additional coated groundwood tonnage is expected to enter the U.S. market. Two new coated groundwood machines from Europe could be adding 400,000 tons a year to the marketplace as early as 2001, according to RISI, forcing domestic mills to hold prices steady.
Then again, increased use of electronic marketing could boost paper prices. While some marketers may abandon print catalogs in favor of electronic ones, thereby reducing the demand for paper, other catalogers will use the Web to generate print catalog business, thereby increasing demand.
“Part of the growth in cataloging over the past few years is attributable to the growth of electronic cataloging,” Paauwe says. “Many online inquiries are for catalog requests, and mailers are printing extra advertising and catalogs to boost online visitors.”