Publishers get mixed news on paper front

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At press time, the lockout of paper industry workers in Finland appeared set to end after the Finnish Forest Industries Federation and the Finnish Paperworkers’ Union announced late last month that they have reached a tentative agreement on a new contract.

The lockout, which began May 18, had resulted in a tightening of supplies in Europe and led to fears that the shortage would soon spread across the Atlantic to the North American market. The resolution of the lockout did not, however, stave off a 5%-to-8% price hike on coated groundwood that went into effect July 1. It was the fourth price increase in less than a year.

Prices for No. 4- and No. 5-graded coated papers climbed about $35 a ton on 36-pound and lighter grades and about $45 a ton on 38-pound and heavier grades.

The labor-management strife in Finland had far-reaching effects, because the country produces about 15% of the world’s paper. The lockout was of such importance to the Finnish economy-paper accounts for one-quarter of the country’s exports-that the prime minister ordered the two sides back to the bargaining table.

The lockout was damaging the bottom lines of two of the world’s largest paper manufacturers, UPM-Kymmene and Stora Enso, both of which have a strong presence in Finland. UPM-Kymmene estimated that the lockout was shaving 4 million euros a day from its operating profit.

The lockout was only beginning to concern publishing industry paper buyers in the U.S. "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.

Some in the industry, however, were beginning to sound the alarm about potential paper shortages if the dispute were not resolved in short order. "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?’ "

Publishers in the U.S., however, were skeptical that a paper shortage was in the offing. Some buyers said they were suspicious that paper mills were using the lockout in Finland as an excuse to raise prices again.

Tom Purple, VP at Websource, a paper broker, said the lockout in Finland was 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.

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 20% or so.

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: Publishers will have trouble passing on the expense to advertisers since overall demand for ad pages is flat.

At Cygnus, Martin stocked up on paper to beat the price hike, with the added benefit of staving off any concerns about shortages. "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.

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