Finnish labor strife could lead to higher paper prices, shortages

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The paper industry, mainly through price hikes, has delivered little but bad news for b-to-b publishers over the past 12 months. And the news may get much worse because of a lockout at paper mills in Finland.

Paper companies are pushing through price increases on coated groundwood papers—the fourth round of hikes in a year—on Friday. The latest Increases are slated to be in the range of 5% to 8%. On No. 4- and No. 5-graded coated papers, prices are climbing about $35 a ton on 36-pound and lighter grades and about $45 a ton on 38-pound and heavier grades.

But the lockout in Finland may produce something even tougher to take: a paper shortage later in the year.

"In general," said Verle Sutton, editor of "The Real Time Report," an industry newsletter, "buyers are underestimating the impact of the [lockout] in Europe in particular. It’s an enormous issue, and the question is not going to be about the price of paper, it’s going to be, ‘Can I get the paper?’ "

Finland supplies about 15% of the world’s paper, and the supply of all sorts of paper is already tight in Europe, especially in Finland, where the labor dispute began in mid-May. A newsletter from the International Federation of the Periodical Press said the Finns are beginning to hoard toilet paper.

"Right now there’s a panic in Europe," Sutton said. "Publishers and catalogers over there are trying to figure out how they’re going to get by on printing less than they had planned."

Sutton said the shortage would spread to the U.S. if the lockout in Finland is not resolved quickly. The union has already rejected two proposals placed on the table by the National Conciliator in Finland.

Publishers in the U.S. are skeptical that a paper shortage is in the offing. On background they say that they are suspicious that paper mills are using the lockout in Finland as an excuse to raise prices again.

Tom Purple, VP at Websource, a paper broker, said the labor-management strife in Finland is only part of the story. Increased petroleum and other raw material costs, diminished capacity due to mill closures, a continuing strike at a mill in Canada and relatively steady demand for paper have combined to boost prices, he said.

"I think what we have heard is that it is starting to tighten up, which would cause paper manufacturers [in Europe] to export less and keep it at home, thereby causing supply to get even tighter," said Michael Cohen, director-manufacturing and distribution purchasing at Reed Business Information U.S., whose parent company, Reed Elsevier, is headquartered in London. But for now the immediate impact on the U.S. of the conditions in the paper industry is the price hike.

Tom Martin, VP-manufacturing at Cygnus Business Media, said the latest price hike, combined with the increases over the past 12 months, will likely push paper expenses at the publisher up by about 20%.

Bill Amstutz, senior VP-operations at CMP Media, said paper expenses at his company had increased by double digits in the past year.

The problem is exacerbated in the b-to-b arena, because publishers will have trouble passing on the expense to advertisers as overall demand for ad pages is flat.

Few paper buyers in the U.S. expect that any shortage woes will touch them. When asked if she was concerned about a shortage, Linda Knott, production director at Allured Publishing, replied, "Not as of yet."

Jeff Swanson, production director at Watt Publishing Co., said, "We rely on our printer to buy the paper for us. I’m not really concerned about availability."

Added Amstutz, "It hasn’t impacted us in a direct way. We’re not buying paper directly from Finland, and we haven’t had an issue with our supplier of paper."

At Cygnus, Martin has stocked up on paper to beat the price hike—and perhaps stave off any shortage concerns. "We bought six months out on some of the low-end stock—the 38-pound and 40-pound papers—to make sure that we had it," he said.

In addition to buying paper in advance, Martin is also employing the power of positive thinking. "I think the Finnish strike will be over within 30 days," he said.

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