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Paper prices likely to decline in 2009

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Verle Sutton is founder, editor and publisher of Forestweb's monthly “Reel Time Newsletter,” which has focused on the paper industry since 1999. He is also president of R.O.S. Paper Sales and has worked in both mill and paper broker sales for 25 years. Media Business: What paper price shifts do you see coming? Sutton: I think the certainty is that we won't get a continuation of sharp increases next year. We could get another increase, but prices are more likely to come down rather than continue higher. Lots of capacity has been taken out in the last year, but the 2007-08 price surge has resulted in substantial demand destruction. We'll see how that balance shakes out, but the coated groundwood market is very weak right now, and spot prices have already begun to decline. In the past, we've never had a slow decline. MB: Do you expect more shutdowns and mergers? Sutton: Yes. We've been going through that for 20 years now at least. It'll happen more, for sure. I can't figure out where it will be. Not that it won't happen, but where? I don't know. Actually, over the short term, we might get a bump up in capacity. The rumor is that the [Tembec Inc.'s] St. Francisville [La. plant] is going to start back up again under new ownership. MB: What's happening with recycled paper? Sutton: Some of the buyers will continue to press for post-consumer recycled fiber. It's unfortunate because for the most part it's mind-bogglingly stupid. Demand for recycled fiber far exceeds supply, so there is no need to artificially increase demand further. Without outside interference from environmental organizations, recovered paper is typically recycled into lower-quality paper grades such as newsprint, corrugated and the like. When used in these grades, the fiber yield is great, energy costs are lower and there is actually an economic and environmental advantage in using recycled fiber. Environmental organizations that are pressuring large paper consumers to include post-consumer recycled fiber in higher quality printing grades are helping destroy the environment they claim to be saving. ... Paper buyers and the large companies they represent understand the situation, but many believe that challenging environmental organizations is a no-win tactic. MB: Are the mills afraid yet of electronic paper? Sutton: That is the future at some point, whether it's five or 50 years from now. There's no out here for mills. The objective right now is to be as efficient as they can so they're the last person standing, and they can make a little money along the way. They'll continue to invest where they have really good returns, but I can't imagine they'll spend like they used to. —Mark J. Miller
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