The hike in paper prices threatened in late spring has gone into effect and held, and now publishers are worried about another increase early next year. The increase that went into effect was about 10%, and the next one is expected to be around 6%.
Paper manufacturers' ability to make price increases hold marks a significant change, as they are now finding themselves with the upper hand in negotiations with publishers. This was something publishers had been doubtful could happen as the media industry stepped up its reliance on sending information digitally.
Some publishers already have experienced the jump in prices, while others were able to fend off the changes until this month. "[Some] companies were able to hold off the increases to fit into their quarterly cycles," said Steven W. Frye, printing consultant and owner of Frye Publications.
"In June and July, paper mills had all the cards," Frye said, "because the Olympics were coming up, fall catalog season and the presidential campaigns were heating up. Publishers needed paper." But with the Olympics passed and most fall catalogs already printed, the higher paper prices have held.
The market for supercalendar paper remains especially tight. "Really anything can happen with this market," Frye said. He attributed the tight market to the paper being used for newspaper inserts and catalogs, in addition to magazines.
One paper company executive who asked for anonymity said he expected coated paper to go up $3 a hundredweight this month and uncoated to rise $2.50 a hundredweight. "It's not a huge increase, but I know publishers won't be very happy about it," he said.
The next increase is not expected before April 2005. "I hope they can hold off until then," said Glenn Filippone, director of manufacturing for American Lawyer Media. "Publishers can't take on too many increases at once. As it is, we're still trying to negotiate down the summer increases."
Karen Palmieri, VNU VP-manufacturing and distribution, said publishers were understanding about the price increase this past summer. "The paper industry has been seriously hurting since 9/11," she said, "and it made sense that they finally were going to try and get back on track." But she added that publishers were surprised by the suggestion of a second substantial price hike.
In the past few years, it had been difficult for paper mills to put price increases through, but various factors have changed that. "There have been several paper mill closings in the U.S. and a strong need for equipment replacement and upgrade," said Ron Brockman, director of production at Vance Publishing Co. "And things are bleak internationally as well. The exchange rate with the Far East isn't favorable to the U.S. anymore, and European paper is drying up, so there's just more demand than there is [capacity] out there."
Plus, Brockman said, the strong growth in both magazine launches and catalog pages hasn't helped prices, either.
Most publishers aren't in a position to stockpile paper in advance of price hikes, according to the paper company executive who asked to remain anonymous. "They can't because most of their contracts won't allow for it," he said.
The executive also said publishers have something else to fear: shortages. "I've seen it already," he said, "sometimes up to 50%, and there's not a lot a publisher can do about it."
Palmieri said she believes there will be more than one price increase next year. "What the paper mills need to remember is that when those prices go through, it has an effect on publishing overall and paper consumption overall," she said.
Bill Amstutz, CMP Media's VP-manufacturing and distribution, said publishers are beginning to adjust their paper usage. "As publishers work on 2005 budgets we are looking to find ways to reduce paper usage, and that may deteriorate [as] the demand increases," he said.