The Forest Through the Trees
Following a tense 18 months that saw paper production streamlined through consolidation, mill closings and machine shutdowns, paper producers look toward 2003 with a hint of optimism fueled by anticipation of an economic rebound. According to most manufacturers, major consolidation has strengthened the paper industry rather than harmed it, allowing companies to concentrate on their core lines to maintain their position in increasingly competitive markets. Another upbeat development expected in 2003 is further introductions of digital papers to accommodate digital short-run presses.
BTM spoke with some producers who expect more consolidation in the coming year, occurring on a smaller scale. They added that further contraction of the marketplace isn't necessarily a bad thing as it can act as a steadying force, one which will expand a company's product line and draw publishers to team up with a company that can meet all of its paper needs.
Whether any value exists by bringing two companies together must be determined before an alliance happens. When Mead and Westvaco, for example, merged to form MeadWestvaco in February 2002, the company grew stronger, according to the company, and sees 2003 as a year in which to further strengthen its current product offerings.
"Having recently gone through a merger it has been a very stabilizing thing for our company," says Tara Rogers, Global Business Manager-Graphics for MeadWestvaco's Packaging Resources Group, which produces board and cover stock. "As two companies together it has helped us build our business in the publishing industry, and it now makes more sense for publishers to partner up with MeadWestvaco."
For 2003 the company will focus on building the performance of its Tango product for coated covers.
"We want to make sure that Tango looks very good because it helps sell the book [in the bookstores]," Rogers says. "Publishers are looking for paper that prints easily and meets their needs. If there are problems on press, then it won't meet their deadlines."
When larger companies merge it can provide an incentive for smaller companies to focus on servicing its customers more efficiently. "[Consolidation] affects all manufacturers," says Renée Yardley, director of marketing of Tembec Paperboard Group, another manufacturer of board and cover stock. "From our standpoint it provides us with an opportunity because bigger doesn't mean more responsive. We [as a result of other companies consolidating] are focusing on being more responsive to our customers."
Dependent upon consumer
Another challenge facing paper producers next year is working within the boundaries of the economy and what consumers do with their discretionary spending. Optimism abounds that the economy will finally recover from the recession.
"The biggest issue moving forward is dealing with the economic realities that our publishers are dealing with," says Dominic Maiorino, vice president of sales for publication papers with Domtar. "We're trying to strengthen our relationship with the customer-and the consumer's ability to buy one or two novels a month impacts that." The purchasing power of the average consumer will also affect the manufacturer's ability to increase prices, and Maiorino expects that price increases will go into effect in 2003. Rogers, for one, does not anticipate a jump in paper prices at MeadWestvaco. The company, she says, recently increased prices as did some of its competitors in anticipation of an economic rebound.
Still it is hard to say whether publishers will have to pay more for paper rolls in the coming year. David Grayson, president of American Fine Paper of Appleton, WI, says any increase will be small as the international community plays a part in keeping the lid on a large increase.
"There might be small increases in price as the economy improves, but I don't expect any huge increase because that would impact the profitability of the publishers," Grayson explains.
Yardley, however, says there isn't necessarily a correlation between the two, and should the economy improve it doesn't mean a price hike will follow. "I think pricing will be relatively flat, but if you look at the returns the paper industry has received, [it] needs a price increase."
What publishers can count on is the development of digital papers in the coming year. Domtar is currently working aggressively on the concept in its other divisions and Eastern Paper, based in Amherst, MA, is beta testing its Inspire product specifically designed for digital offset presses that print 70 pages per minute to 100 pages per minute. As installations of digital short-run presses increase, manufacturers turn toward technologies that will produce paper capable of running on machines and deliver a high quality performance.
"[Inspire] is absolutely made for this kind of thing," says Joe Torras, chief executive officer of Eastern Paper. "It is an uncalendered, uncoated grade with wonderful archival quality."
Torras said International Paper is another company that will introduce digital papers. As well as conceptualizing digital papers, Domtar is also looking at other opportunities in the book business for the coming year, including deploying lighter weight bulking papers into the market. The company, for instance, manufacturers a 45-lb. paper stock with the characteristics of a 50-lb. stock. A publisher now purchasing 100 tons of 400 ppi 50-pound stock can purchase 90 tons 400 ppi in a 45-lb. stock and get the same advantages.
Reduction of capacity
For an industry trying to right itself, reducing capacity and getting the most out of the equipment available makes the market more competitive. Rather than operating more machines and offering new lines, some paper manufacturers are content to improve the lines they already have.
"The paper industry has shut down millions of tons of capacity and there really isn't anything new coming [on board]," Torras says. "So the paper industry has an opportunity to balance itself if the economy grows favorably."
Although paper producers enter the coming year anticipating a good year, many answers remain speculative. They assure, however, that a competitive marketplace will remain.