Why are the Paper Markets remaining extremely tight?
Post-pandemic demand for graphic paper is outpacing an already thin global supply.
All graphic paper grades and basis weights and finishes are oversold for Q4 with orders exceeding saleable capacity.
All paper manufacturers have moved to an allocation/reservation system.
The main reasons for the decrease in paper supply are low inventory in the supply chain coming out of the COVID-19 pandemic, paper machine conversions, as well as temporary and permanent domestic capacity closures, including Verso’s Wisconsin Rapids, WI, closing which produced coated paper. A loss of 540,000 tons/year.
What is being manufactured?
Mills shifted to producing cardboard and other grades for the growing packaging market. The Packaging Corporation of America removed 75k tons of uncoated paper and converted to cardboard. Uncoated sheets are the paper grades used for envelopes, copy paper and multi-part forms.
What about offshore supply?
Typically, offshore imports would be expected to quickly fill the gap between domestic supply and demand. However, despite rapidly rising price levels, imports have not expanded to relieve the domestic market due to disruptions in global shipping markets that have made international transport difficult and quadrupled the cost of freight containers.
Manufacturers were already suffering from shutdowns during the pandemic. Mills were not prepared for the resurgence of demand. With the lack of inventories to meet demands, some marketers are forced to cancel programs completely or divert advertising dollars from print to other media channels. This could cause a long-term threat that could result in eventually decreased supply.
Supply is down and demand is growing for uncoated paper. So far this year, the paper industry has experienced four price increases with the expectation of several more. Companies who are just breaking into direct mail marketing or who are attempting to increase their print marketing, are concerned paper will be an issue.
What can you do?
Plan… The more time you allow for planning, the higher the likelihood you will be able to get paper.
Be Flexible… All coated sheets are on allocation. Lead times are typically 8 – 12 weeks. Orders put in months in advance does not mean the order will be guaranteed, but extra time helps.
Expect longer estimate times… Each quote must confirm paper availability and price and can no longer rely on stock paper or quick turnaround of inventory.
Communicate, communicate, communicate… Keep communication lines open with your sales consultant. You may have to make quick decisions to confirm a stock order.
What does “Allocation” mean and how does it work?
Allocation is a tool mills use to try and gain control of printers’ orders when demand for paper exceeds supply. Most mills base allocation percentages on a printer’s past purchases. They normally allocate 60-70% of that number. Mills also consider the basis weights and grades of paper a printer has purchased in the past when determining what that printer’s allocation will be. Alexander Clark Printing has well-established relationships directly with mills. We also maintain relationships with secondary merchants and take every opportunity to look at options to meet our customers’ needs.
We do not see inventory levels returning to pre-pandemic levels for a long time. Mills have been running at over 100% operating rates for over a year which means very little paper is in inventory. Domestic mills have decreased allocations as they are working to build inventory levels to allow the paper to be more readily available months down the road. By allowing inventory to increase from current levels, mills will have more machine flexibility, which hopefully will result in more accurate delivery dates and shorter lead times.
“We will get through this. It won’t be painless. It won’t be quick…” Max Lucado