Weak pound puts paper prices under pressure
Thursday, October 13, 2016
Printers and print buyers should be braced for double-digit paper price rises if the pound fails to strengthen against the euro, with one papermaker describing the current situation as “a disaster”.
This week sterling was down 14% on the euro since the referendum in June that saw the UK vote to leave the European Union. It was down 17% against the dollar for the same period.
Most of the paper used in the UK is imported, much of it from mills in continental Europe.
A senior source at one large papermaker said: “The currency movement over the last ten days has been profound, and with the pound now below €1.15 it’s just not sustainable.
“It’s a disaster for us because the vast majority of our costs are in euros. The bottom line is, this is an extreme price reduction for importers into the UK. Yes, companies hedge against currency movements but that only helps in the short-term. Very quickly we could be talking about significant price rises.”
He said paper grades across-the-board would be affected, and cited the likely price increase as “double-digits”.
“Unless the pound recovers prices are going to go up. It’s crystal clear.”
The decisions made by paper and forestry giant UPM, the world’s biggest manufacturer of graphic papers, are seen as key to any shift. “All eyes are on UPM, they should have been pushing this in September. Customers are waiting for an increase and expecting it, but UPM only made an increase on SC grades,” noted one publications paper expert.
UPM had not commented at the time of writing.
Domestic paper mills that use recovered paper could also be put under pressure, because the weak pound is causing the price of waste paper to go up.
One merchanting source said that New Year price rises appeared to be on the cards.
He said: “Most of the current rates were tied down before Brexit, and the mills are now saying those prices are killing them. Come the New Year they will be pressed to make increases. But at the same time the market in Europe isn’t particularly buoyant so mills are also twitchy about losing business. There’s definitely trouble around the corner.”
However, there is an alternative view that the impact of Brexit will result in a more open market for UK paper buyers.
“My view is that paper prices will go down,” stated Darren Goodson, director at London-based Premier Print Group.
“When Brexit is fully realised and we leave the EU it will allow us to import from the worldwide market without papermakers from outside the EU being hit by massive tariffs.
“There might be short-term hikes but give it time and we will start to see suppliers buying from Asia at cheaper prices.”