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Reed Business' Cohen on price stabilization

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Michael Cohen, director of manufacturing and distribution purchasing at Reed Business Information, shared his insights into the paper industry with Media Business.

MB: What do you see happening with paper prices?

Cohen: Right now, I see paper pricing stabilizing. Based on current demand, I believe mills will find it difficult to raise pricing in 2007, unless demand picks up significantly or additional down time or machine shutdowns occur. The wild card will be the mill negotiations with the new consolidated union.

MB: Should companies lock in their current prices for as long as possible?

Cohen: I don't believe there is one answer to this. It depends on your goals. If you want to have stable, predictable pricing, then a long-term arrangement may suit your needs. I also believe that longer-term agreements encourage pricing stability and help mitigate the historical ups and downs of paper pricing. Certainly, the mills' commitment to match capacity with demand has gone a long way to bringing consistency to the market.

MB: Are there certain types of paper that are gaining in quality that publishers should be considering?

Cohen: We've seen most mills paying closer attention to quality improvements. Certainly, structural quality has improved, resulting in better runability. Making sure paper allows the printers to run their presses most efficiently is in everyone's best interest and helps reduce waste. Whether buyers are willing to pay a premium for improvements in paper attributes such as brightness and gloss remains to be seen.

MB: How much trimming has Reed done in the past few years? How much has that saved you?

Cohen: Like all b-to-b publishers facing budgetary challenges, RBI has implemented many changes to optimize our costs. A trim size rationalization program—consolidating our titles to several fewer trim sizes—was implemented in 2006. Additionally, we rationalized basis weights and grades, consolidated to fewer combinations. Both efforts have reduced costs and allowed us to better manage our paper inventory.

MB: Paper buying used to be on an 18-month or two-year cycle. Do you think that cycle still exists or has it been broken?

Cohen: It looks like the efforts the mills have made to manage capacity against demand has resulted in smoothing out the roller-coaster we used to be on. It may be too soon to tell, though. My sense is that it has broken the cycle, but I believe we'll need a few more years to see that evidence. As long as the mills continue to be committed to "right-sizing" capacity, the result should be more predictable paper pricing.

MB: What role do Asian and European mills play in today's paper buying, and how will they continue to play a part in the future?

Cohen: It will probably become immaterial where the paper comes from. European mills have invested in China and South America. They're no different than any other manufacturer that is trying to reduce their cost base and increase profitability. It will simply become economically unfeasible to manufacture paper in North America. Where are the new paper machines being built? Where are the greatest growth opportunities? With warehouse programs, mills can as easily import paper as manufacture it domestically. As long as there is parity in quality, source will be immaterial.

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