Offset printing help: Paper shortage of 2006 and what you can do

The uncoated paper market tightens in 2006
Planning ahead can help you navigate troubled waters

Summary
Paper companies are closed paper machines in 2005 and it seems it will continue through 2007. North American production will go down by 10%. Prices will go up and uncoated paper may be hard to purchase. With advance planning and communication with your printer you can increase the chances paper is available for your jobs.

Paper is a sold as a commodity just like oil, grain and beef. It is literally sold by the pound. Therefore the paper market is subject to Adam Smith's immutable law of supply and demand. When demand is less than supply, prices usually go down. When the inverse occurs, prices usually rise. The paper companies have decided the can increase profits by reducing supply.

This article will discuss what the paper companies will do, how it will affect purchasers of print and how purchasers can manage the situation.

A little history
This is not a new phenomenon. Paper companies are businesses trying to make a profit. They are charged by their shareholders to maximize returns. Paper manufacturing is a very capital-intensive business, a new paper machine may cost upwards of $400 million dollars. They need to recoup that investment and it hasn't always been easy.

At various times the major paper companies have tried to increase prices. Usually one will test the water. If there is an imbalance between supply and demand the increase will stick. The last time this was tried was in 2003. Supply was curtailed, paper was hard to get and prices went up. This lasted for about 6 months. The supply went up but prices generally stayed up. Back in the late 1970's paper became very hard to get. In some cases, the most important factor in getting a specific job was the ability to get paper.

Capacity will go down in 2006 and continue into 2007
During 2005 several paper companies closed paper mills. This trend will continue through 2006 and into 2007. Here's a sample of closings:

Weyerhaeuser will close one of two machines at their Dryden, Ontario plant, removing 155,000 tons of uncoated capacity.
At the end of 2005 Weyerhaeuser closed their Prince Albert, Saskatchewan plant, taking out 280,000 tons of uncoated and 130,000 tons of coated papers out of the market.
Domtar will shut its Cornwall, Ontario mill in 2006, removing 265,000 combined tons of coated and uncoated paper.
Domtar will also shut a plant in Ottawa, Ontario that currently produces 65,000 tons of mixed stocks.
International Paper is converting a 350,000-ton-per-year uncoated paper machine at Pensacola, Fla., to high-value 500,000 ton-per-year lightweight linerboard.
International is also considering cutting back production at another offset mill.

Other paper companies are reducing capacity as well. Most of this reduction will be in uncoated papers. I talked with an industry insider who works for a major North American paper distributor. He said, "When everything is done, the supply of paper in North America will be reduced by 10%."

Read a very informative article about the business of manufacturing paper.

Why are the mills doing this?
Profits. The market for uncoated offset has been weak in the past 2 years. The plan is for the reduced supply to drive up prices and therefore make more profits for the paper. Here's an excerpt from a Weyerhaeuser news release:
"The uncoated free-sheet paper and pulp markets face fundamental challenges, including excess capacity, declining demand, mounting inventories and weak prices. Weyerhaeuser made its determination regarding the Saskatchewan operation as a result of these market conditions."

What will happen?
Prices on uncoated offset will go up and it will become more difficult to obtain. Only time will tell how the remix of supply and demand plays out in terms of paper availability and prices. But certainly in the short next few months, expect to pay more for paper and plan ahead to get it. The industry insider I talked with was felt with the dramatic reduction in supply, it was likely prices would remain at the higher levels.

Paper mills will enact moratoriums where they will not take any orders for paper. During a moratorium paper mills will not quote, nor ship, certain brands of paper. Read an actual moratorium memo from a major mill.

Sometimes paper mills place all paper distributors under allocation. That means the distributors may only purchase as much of particular brand as they did the prior year. The distributors pass the same restrictions on printers, their customers. If a printer has purchased their allocation of a brand in any given month, there is a very good chance they won't be able to get additional stock until the next month.

Prices have already gone up and may continue to do so. Read notices on price increases from two manufacturers. Roll stock will be the first hit because is has the least value added. The companies are less inclined to sell stock right off the machines (rolls) that have smaller profits. They will want to sell stock that has been sheeted, cut size and envelopes because they have more profit in them.

What can you do?
The first thing is sticking with your current printer. You'll have a much easier time getting paper from your current printer than from one with which you have no history. If printers are on allocation, a new printer may be less inclined to sell you stock than to a customer who gave him steady business last year. However if your printer can't seem to get stock start calling your second and third tier suppliers immediately.

The most effective tactic is to plan farther in advance than you might normally have done. It might take a few months to get the paper for larger orders. Discuss your needs with your printer as far in advance as you can. If you can commit (usually with a purchase order) to your printer to purchase a fixed amount of paper in the future, she can get it in the pipeline. That way when the job is ready the paper will be there for you.

Substituting papers is also a viable strategy. If you're currently using a 60# commodity offset, you may consider using a 50# opaque sheet. The opacity is about the same but an opaque sheet may be easier to get. If things really get rough, consider using an inexpensive matte sheet.