Have you been handed multiple increases on your paper you buy to communicate your message? Are the mills being greedy? Are they riding some upward wave to recoup some of their losses over the years? How do I control my costs? All great questions!
Paper mills are facing difficult times, rising input costs, availability of raw materials, logistics costs inbound and outbound. They are being forced to make very difficult decisions that affect the livelihood for many people and small towns they inhabit. Gone are the days where you ran a machine to make paper for the mills inventory just to keep the machine running when orders were low. As well, gone are the days where the deep pockets of the owners could ride a lull in the market and afford some losses. For years paper mills were owned by paper makers, yes people that were in the business long term to make paper, imagine that. Today they are owned by investors, run by savvy business leaders. Is there a difference? Sure, paper makers were in the business to make paper, investors are in the business to make money. We have seen first hand mills shut down due to costs and running out of operating capital. Before you just launch into thinking in your head, those greedy people, how dare they, lets understand the reality of the markets they serve.
Input costs – If you follow the industry, you know that pulp is a major component of paper input costs. The pricing for pulp on the market is getting to look like the upward climb on the amusement park roller coaster. Except users of the pulp are not very amused. In fact, in the last year several paper mills have had no choice but to close without notice due in part to the rising cost of pulp. Certainly, there are other factors that affect the cost of input materials in the equation and their decisions.
Delivery costs – If you get paper to your press, it came on a truck for some or all of the journey. New regulations in the industry, driver shortages and the cost of fuel are driving a serious shortage of drivers and trucks that service the paper mills both inbound and outbound. Mills are having to shift over to using rail and other avenues just to get you the paper, forget about it hitting your requested date every time, just be happy they took your order and delivered it to your dock.
Investor push – Investors demand to make money on their investment. Unless you have a lot of money to toss out, you expect that as well in your investments. This has driven the need to rethink the strategy of each mill for the future. Unfortunately, this leaves some no choice but to idle machines, close entire mills (with and without notice) or repurpose their machinery to make more profitable / growing grades. Some mills are proactively seeking ways to add value and some are just throwing up their hands and telling you they closed. Great leadership creates the vision to remain viable in some fashion to their investors; however, as they make those decisions in does affect the capacity in the market.
Capacity – Just like any other commodity, supply and demand are critical components that drive market decisions and pricing. The last twelve months have been volatile in available capacity. Some changes are due to machine repurposing, some changes are due to machine down time, some are due to entire mill closures with and without notice. The coated market is very tight right now due to all of these market capacity changes. There are reports of some printers not even being able to get paper for some projects. This has certainly put the mills in a position to “pick” those customers they want to run first. Spot buyers will fall to the wayside for those who have long term relationships.
Gloom and Doom? – Of course not, but a keen awareness of the market factors and players is critical to the success of the printing and publishing community. Put blinders on and hope all things work out is a recipe for disaster.
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