Forecast worsening for paper supply

By Hannah Jordan, Tuesday 29 May 2018

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Earlier this month PrintWeek reported on the ‘perfect storm’ of global events that have tightened the supply of graphical papers and resulted in paper mills resorting to allocation for the first time since 2001.

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Factors in the mix are wide-ranging with the surging global demand for pulp being at the forefront, fuelled by its ever-expanding uses in new and existing markets, such as hygiene and tissue products, as well as the backlash against plastic with manufacturers seeking paper-based alternatives. 

“Pulp is no longer a one-trick pony,” says Mario di Lieto, managing director of Stora Enso division LumiPaper. “There’s a much broader use for cellulose today than just paper. It’s being used for plastic substitute, for clothing, for biomass for energy, all sorts of applications.”

As a result of this soaring demand, pulp prices have been pushed up further and further from $700-$750 (£520-£557) a tonne a year ago, to nearly $1,200 causing a knock-on effect across the print and packaging industry, among others. 

“Nobody projected the backlash against plastic, and that subsequently pulp demand would shoot through the roof,” di Lieto says, adding that despite the ongoing development of new pulp mills around the world he could see no let-up in supply issues until these were completed. 

Added to the widening demand for pulp, paper manufacturers such as Holmen, Stora Enso, UPM and Mondi all report in their latest financials continued increases in raw materials costs such as chemicals and fillers as well as logistics and energy, with some stating the cost increases had offset or partially offset their higher selling prices. 

Meanwhile in recent years, as a result of reduced demand, numerous paper manufacturers have mothballed or converted paper machines to make carton board, for example, while new demand from China has greatly exacerbated the problem. 

As part of an environmental clean-up strategy, the Chinese government closed more than 2,000 factories in 2010 including some 279 pulp and paper mills on top of targeting an annual capacity reduction of around 4.3 million tonnes. Added to that, a ban, since 1 January, on waste paper for recycling among other things, and the resulting surge in paper demand has redirected much of the tonnage produced in Asia away from Europe and the west coast of the US. It has even attracted at least one European papermaker, rumoured to be Holmen, to move some of its sales from Europe to China.

The situation is further hindered by the uncertain futures of German paper makers Scheufelen and Feldmuehle Uetersen. The former is in the midst of insolvency proceedings as was the latter, but has now been bought, although the deal has yet to be completed.

Furthermore, many publishers have switched paper grades as they look for cost reductions, applying more pressure on supplies with web offset, gravure and newsprint papers in particularly short supply. 

Sappi UK managing director John Clinton says he’d been surprised by how full the group’s paper machines had been this year and adds that lead times had increased on some grades and also sheets, with coated sheets now six-to-eight weeks, and 10 to 12 weeks for Sappi’s Galerie Fine paper. 

“That doesn’t mean every customer has to wait 10 weeks. But in the case of unexpected demand, people will have to be more flexible about what paper they use,” he adds. 

One source told PrintWeek that with the standard response from buyers being to downgrade paper, the shortage was now across all grades and that businesses needed to get smarter about buying because suppliers were more likely to look at markets on a profitability basis in the current climate. 

Lack of expertise

Competency among buyers, PrintWeek heard, was also an issue, inasmuch as today’s buyers in some cases no longer had a thorough enough understanding of the industry to be able to switch product out or use it in a smarter way, and this was leaving some unstuck. 

And as if all this weren’t enough the European Printing Ink Association last month added to the list of printers’ woes, announcing a potential short supply of the photoinitators used in printing inks due to new environmental regulations and production outages.

So how are printers being affected and how can they help mitigate the risk of being caught short?

Walstead Group chief executive Paul Utting, says that smaller customers were struggling to get hold of paper but that being a large buyer, he hoped the business could help. 

“I haven’t known anything like it for 20 years, there’s a real scarcity of supply at the moment. People are being told that it doesn’t matter whatever they are prepared to pay, there is no paper,” Utting says. However, he says he believed it to be a short-term supply issue.

“With paper prices going up so substantially it will squeeze margins even further at publishers and printers. That will speed up the consolidation process as it puts everyone under pressure,” Utting adds. 

Rises in paper prices have continued unabated in recent months, with seemingly no let-up in sight over the summer when Sappi has announced a price increase of 6%-8% on LWC and MWC grades and the Navigator Company is to push up uncoated wood-free papers by 7%-8% in Europe, across all products and markets, from 1 July. 

Buxton Press managing director Kirk Galloway says that while he had no supply issues, he expects the situation to get worse before it gets better for many: “It could make life much tougher for printers but equally so for publishers, who as well as considering stock type and price may have to make design compromises according to availability of stock. But the real question is how many more increases can the industry absorb before it permanently damages itself?” 

Chairman of print procurement firm Webmart, Simon Biltcliffe, says he expects the rises to continue. “Looking back 25 years ago, there were paper prices being given with a cap and I can see that coming back because paper won’t go down from here, it will only go up,” he says.

“Whoever has the longest-term perspective and vision and cashflow will be successful and those that leave it late and haven’t got a clear strategy and take extended payment terms will be left at the back of the queue,” he adds.

Biltcliffe advises buyers to work closely with suppliers, be prepared and be flexible.

“I think a number of people will be caught out at the back end of the year, so book early, book as long ahead as possible,” he says. 

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