Paper Price Spike Causes Concern Among Publishers

As if publishers didn't have enough trouble. Advertising revenues, circulation and overall magazine size are still trending downward. The only thing that seems to be trending up is the price of paper. Some saw it coming, but it happened so quickly that almost all are concerned.Paper prices have been flat, even declining slightly, for the past few years. But over the past couple of months, they have suddenly leapt upward."We're seeing prices go up 5 to 10 percent," reports Andrea Baron, manufacturing manager of American Express Publishing in New York. "We're certainly concerned about it. [But] it's not a shock—we were expecting it, and we did budget for it."Catalogers have seen a rise as well. One national consumer catalog company has seen a 25-percent increase in paper prices in the last few months and expects a larger increase in the coming months.Another company, Catalogs by Lorél—which creates and produces catalogs for a variety of clients—has also seen prices rise, but is relieved that another increase has been slower to come than anticipated. "This $3/cwt paper increase does seem to be a reality, with no indication of being scaled back or rescinded," says Dawn Flook, the company's director of catalog production. "However, we have seen a reprieve from the original projected increase date of June 1 to July 1. This has given us the chance to work with our suppliers to extend pre-increase pricing considerations for projects printing in July and August."Even book publishers are seeing a spike. "I work primarily with two book printers … In April, I saw a flat 5-percent increase across the board [at one printer]. All the stock went up. I haven't seen the latest prices from the other printer yet," says Deborah Bruner, production and design manager for Cornell University Press in Ithaca, N.Y. Still, there are exceptions. "I am seeing prices about the same—fairly flat," says Kim Corrigan, group production manager for Fairchild Publications. Her publications get paper as part of the Condé Nast family, and larger publishing houses often are partly sheltered from price increases by economies of scale and longer-term buying contracts.This was the case for IN New York magazine as well. IN New York is owned by Morris Communications, and "paper purchasing is handled corporately," says IN New York's general manager, Peter Mitchel. "We get the leverage of a much bigger paper buyer." It also helped that Morris, through its work with paper brokers Buckley Dunton and Websource, "anticipated the tightening of the market," says Mitchel. "A lot of us remember '94 and '95, when paper prices took off, and [we] were concerned about that happening again." Why the Sudden Increase?It's not clear why prices jumped so quickly. "There's always an element of mystery in the fluctuations of the paper market," says Baron. Publishing consultant Steven W. Frye says publication-grade papers "have been selling below their 10- and 20-year averages," so the price-increase is based more on paper mills' financial needs than on demand.Others cite economic factors like high fuel prices; delivery trucks cost more to fuel, so you pay more for the paper.What to Do?Flook doesn't necessarily attribute the price spike to fuel prices, but does draw a comparison between it and consumer response to rising fuel prices. "It seems that the paper increase is being accepted by our clients. We have not seen adjustments in printing quantities or mailing plans to accommodate this additional cost. Ironically, it seems to be similar to the increase we see personally at the gas pumps—we are all just contending with the increase," she says.Baron notes that her company has "made some changes to lower costs," although she declined to be specific.Some publishers built up inventory in case prices escalated further. Others said they were tempted to order a large surplus, but having paper sitting around isn't always economical either, due to storage costs and financial concerns with a large capital outlay. "There are pros and cons to pre-buying," says Mitchel.Whatever their plans, the abrupt increases have many publishers off-balance. It would have been naive to assume that current paper prices would hold forever, but the sudden change is off-putting. Several have commented that they would expect small, steady increases in a normal price escalation, but the recent increase has been a hard, fast hit. Some have expressed concern that smaller publishers may even be devastated by the sudden increases.With paper demand still down comparatively, though, some anticipate this hike will be short-lived. Other publishers expect July 1 to bring the next increase across the board."Should there be continued growth in the economy and the printing industry, I would anticipate more, similar increases—especially toward the end of this year or early next year," says Flook. "I would guess the paper mills would like to take advantage of stronger paper pricing before the USPS starts vying for budgetary dollars with postage increases expected sometime in 2006 (to which many catalogers may respond with changes in their mailing and paper plans)."Frye says it doesn't help that publishers are getting "mixed signals regarding the latest announcement from some mills of a $3/cwt increase. …But demand still isn't high enough to justify it when some mills are ready to [resist an] increase so they can capture more sales." Frye says many in the industry don't believe the $3/cwt will hold, but expect the $2/cwt will. "And, if it doesn't hold now, it will in the third or fourth quarter," he adds.With the future uncertain, Frye suggests publishers prepare for the worst. "For a while, I've been telling my clients to budget for a 5 percent to 10 percent increase (an average $4/cwt) this year and next. If it doesn't materialize, you'll come in under budget, but if it does, you'll be prepared. Paper prices will be going up," he says. "It is only a question of when and how much."One Paper Holding SteadyIf there's a silver lining, it may be for the ecologically minded publishers. "Recycled paper is priced extremely competitively," says Cornell's Brunner. "It's on the low end of paper prices. One-hundred-percent post-consumer is right now at the low-end of the virgin price scale, and the [30-percent post-consumer] sheets are among the cheapest stocks I can buy. [The] recycled paper price is staying right where it is, and that makes me happy, because it's taken years for recycled paper to be competitive."- Jerry LazarJerry Lazar is a writer, editor, playwright and author in Tenafly, N.J.

General

Paper Price Spike Causes Concern Among Publishers

Publishing Executive Staff

About

Subscriptions

Events

Publications

WORK SMARTER - LEARN, GROW AND BE INSPIRED.

Subscribe today!

Publishing Executive Staff