PAPER SHORTAGES WORRY PUBLISHERS

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The aftershocks of a tightening paper market that boosted prices as much as 20% for magazines and 50% for newspapers during the last six months are still rocking publishers and catalogers.

Paper mills and printers fear shortages for new customers and strict allocations for existing accounts. Speculation also is rampant that further price hikes will hit later this year, leaving publishers scrambling to adopt defensive measures.

American Media has chopped a half inch off the size of both the National Enquirer and Star, which combined sell 5.1 million copies on newsstands each week. And at Conde Nast Publications, there are hush-hush high-level talks about switching to a lighter grade paper on at least one magazine.

The 40-pound coated groundwood paper favored by many magazines and catalogs is in short supply, but switching to a lighter weight is tough because all types of paper are in short supply.

"The speed and severity of the turn in the market seems unprecedented in recent memory," said Brian Kullman, VP-materials procurement at R.R. Donnelley & Sons Co., Chicago, the nation's largest commercial printer. The tight supply market has hit "across all grades of printing paper."

Industry executives say the price for 40-pound groundwood climbed to $900 to $1,000 a ton, up 14% to 20% from a year ago. Newsprint costs around $685 per metric ton, but on March 1 it is slated to rise another 3% to $705.

"The latest list price increase coupled with reductions in discounts means the real price has increased 50% over the past year," said Bernard Bottomley, manager of Times Mirror Supply, the paper procurement arm of Times Mirror Co.

Also, the price of recycled paper, which is more costly to produce than virgin paper, is now selling at a slight premium.

Nobody knows when the market will top out.

"The debate is between whether you budget for two more increases after Jan. 1 or just one more," said Irving Herschbein, a VP and longtime paper guru at Conde Nast.

Hardest hit: new magazines, especially from small entrepreneurial operations, who may have a hard time procuring a supplier. Although most printers and mills say they are servicing loyal customers, giant publishers who try major launches will find it tough to obtain reasonably priced paper, experts warn.

One possible silver lining: Publishers making ad price increases in January are more likely to hold to them rather than discount.

"We went up 8%," said Tony Hoyt, publisher of Cosmopolitan. "A lot of people criticized us then, but these are actual costs that are occurring."

The 14% second-class postage increase was anticipated. But, the steep magazine paper price increases of Oct. 1 and Jan. 1 caught many publishers by surprise, coming as they did on top of a 6% ink price hike Oct. 1.

But, Hearst Magazines Exec VP Mark Miller said he believes, "Ad rates have not gone up enough to accommodate" the increases.

Mr. Miller, like many top publishing executives, is already trying to dig in his heels against further price increases. "We think paper companies are going to try to come back with another hike in April and June," he said. "We don't think they are going to stick."

Some observers hope the explosive demand for paper in the fourth quarter of '94 was fueled by catalogers rushing to beat the January postal price increase.

Robert Spillane, president of Stamford, Conn.-based Donnelley Marketing, warns that might be a false hope. "All the catalog people are looking to mail smarter, switching to lighter basis weights and cutting size," he said.

The supply problem for publishers, and the boom for U.S. and Canadian paper mills, will continue well into 1995, predicted J. Paul DeMarrais, president of PeQuot Papers Co, a Stamford, Conn.-based paper merchant. "This market might have happened last year were it not for the tidal wave of tonnage coming from offshore," he said. Now with reviving overseas economies, European and Asian paper is not available for the U.S. market.

Labor troubles are another factor that may add to the woes of newspapers publishers. Strikes that began late last year at several Canadian mills are likely to further tighten supplies.

But don't look for more supply from U.S. producers. In a recently released annual forecast, the American Forest & Paper Association said it anticipates newsprint capacity will remain flat this year. Coated groundwood capacity is slated to increase 0.7% annually for the next four years.

"It's brutal for some publishers," said Mr. DeMarrais, "but they have to realize that it is only now with these price increases that paper is back to the 1988 levels."

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