Paper Prices: What the Heck is Going On?

You’ve surely seen the bad news: Dietzgen announced an increase effective April 1 that ranges from 6 percent for bond to 25 percent for Tyvek. Neenah Paper announced an approximate 3 percent increase effective March 25. International Paper bumped prices up last summer. And those are just the recent increases.

            “We’ve had four or five increases over the past 18 months,” reports Andy Heling, president of Blue Print Service Co. in Wisconsin. “It seems like every time I went into our system to update the prices, there was an announcement of another price change.”

            What’s going on? Several factors are driving the prices.

            First, pulp prices have risen consistently over the past three years. Two years ago, in February 2017, the Producer Price Index for wood pulp (from the U.S. Bureau of Labor Statistics) stood at 167.4. In February 2019, it stood at 209.7. That’s an increase of more than 25 percent over two years.

            Pulp prices are driven by a number of factors. Demand from China is strong, and that puts pressure on markets elsewhere. Production costs of pulp have increased somewhat, according to experts, and transportation costs have risen because of the strong economy (diesel fuel jumped 32 percent from 2017 to 2018, according to IHS Markit). And the tariff that the U.S. temporarily placed on Canadian paper – since lifted – also added costs.

            “Pulp is pervasive. When pulp moves, it’s the proverbial golf ball through the garden hose that ripples through the industry’s entire cost structure,” said AlixPartners consumer products consultant David Garfield in a 2018 Reuters report on paper costs.

            Second, some mills have closed. West Linn Paper and Appleton Coated closed on short notice about 18 months ago, removing about 736,000 tons of printing and writing grade (P&W) paper. Georgia Pacific and Sappi also closed or converted mills around the same time.

            It may seem illogical that these plants would close as demand increases, but some of the closures/conversions are a reaction to the decrease in demand for newsprint and paper for magazines, since those media have significantly gone digital in the last decade. On the other hand, packaging is profitable – just think of all those Amazon boxes piling up in your vestibule – so some plants have converted from printing grade to packaging paper, further diminishing capacity and driving up prices.

            And the companies like Dietzgen that make paper for reprographics applications are subject to all the forces that drive paper prices. They don’t mill their own paper – they just coat and/or convert it. So when prices at the front end of the supply line jump, their prices jump.

            Heling says the string of price increases his company experienced in the last 18 months totaled about 23 percent. He ate much of that expense until the rate of increase slowed; then he made one larger price increase to recoup some of his margin. He couldn’t raise every client’s price though, as some FM clients are locked into contracts.

            “I’m not upset at our vendor, but it was an extremely frustrating circumstance,” he says. “If they did one increase per year for 10 years, it would be easier.”

            Unfortunately, it doesn’t look like relief is in sight. It takes a long time for a mill to switch to a different grade of paper, so even if one of them decided to increase printing paper capacity, it would be many months before they could switch. And the pressures on prices – demand plus higher pulp and fuel costs – don’t seem to be letting up.

Zane Sharpe, vice president of Sharpe Co. in North Carolina, says he’s seen three price increases in the past 18 months and his supplier says to expect more.

     “They’ve been pretty consistent — they say the increases will continue,” Sharpe says.

This article originally appeared on March 14th 2019 and was published by the Association of Printing and Data Solutions Professionals. Written by Ed Alvis.