Will 2010 be Better than 2009 for the Paper Industry?

The year, 2009, certainly created several challenges for the paper industry. Paper producers did a remarkable job of limiting price erosion despite sharply lower shipment volumes and variable (usually up) raw material costs. The industry responded with massive amounts of market downtime, as well as a significant amount of closures, in many cases even driving down inventories despite weak demand.

Although the last few months of 2009 illustrated some improvement; sustained improvement will only arrive once the economy improves. Keep in mind, 2009 paper demand continued to be lower than 2007 and the beginning of 2008.

The paper manufacturers continue to operate along a slippery rope – recently most grades experienced an announced price increase; meanwhile, demand continues to be below expectations, supply was controlled by down time (this is not sustainable ), input costs such as chemical, energy, and transportation are forecast to increase, and the infamous black liquor credit (worth billions of dollars) is gone.

I think we all agree that for the industry to be healthy, long term, a price increase is needed; however, most buyers are aggressively pushing back due to the inability to pass it on to their customers.

Of particular note is the containerboard price increase – without consumers buying 'stuff' – nothing to go into the box – therefore demand is forecast to be depressed. The other two markets sharing concern are the price increase for publication and newspaper papers. Both are hurting from lack of subscribers and depressed advertising.