With industry sales largely flat, one way publishers have maintained their profit margins in recent years is by operating more efficiently and taking costs out of the supply chain. But publishers’ ability to contain costs could be put to the test this year as the price of paper rises. As one publisher noted, because of an overall decline in demand, paper prices have been good for several years. In early 2018, however, a number of events have led to a decline in the paper supply and an increase in prices.
A recent report by printer Quad Graphics noted that the cost of uncoated groundwork paper rose $35 per ton on February 1 and rose another $25 per ton March 1. Costs have risen in part because of a reduction in supply, as a number of Canadian mills have either closed or, in search of better margins, switched from producing paper to manufacturing other products, such as packaging, explained Matt Baehr, executive director of the Book Manufacturers’ Institute; the institute recently held its annual meeting, which focused on paper issues.
Supply has also been reduced by an environmental crackdown in China, which has reduced the amount of imports from there, said John Maine, v-p for global graphic paper at RISI (a company that analyzes the forest product market) and a speaker at the BMI conference. Another factor driving up prices, Maine noted, is that the cost of pulp has increased by 25% over the past 18 months. Also adding to the cost is higher transportation charges, as trucking companies cope with driver shortages and higher fuel costs. In the near future, Maine told BMI attendees, “tight markets due to supply cuts, rising costs, and a weaker dollar will push up the cost of paper.”
Complicating the longer-term outlook for paper pricing and supply are tariffs that have been imposed on paper produced in Canada. The tariffs came after the Washington State–based North Pacific Paper Corp. (Norpac) asked the Department of Commerce and the International Trade Commission to investigate imports of uncoated groundwood, which it believed were being subsidized by the Canadian government and/or being dumped in the U.S. at reduced prices. The DoC agreed in its initial ruling, and duties and antidumping penalties ranging up to 32% have already been imposed on Canadian paper imports ahead of a final hearing by the ITC later this year.
Though the ITC may lower the charges, no one PW spoke with expects them to be totally eliminated. (The tariffs and penalties are currently being collected; if they are lowered, companies will be reimbursed.) Another wrinkle in the tariff issue came in mid-May, when legislation was introduced in the Senate that would put a pause on the duties on uncoated groundwood paper until the DoC studies its impact on the printing and publishing industry. A House companion bill is expected to be introduced in early June.
Publishers contacted by PW, all of whom spoke on condition of anonymity, said that they are monitoring the situation, but, as one executive noted, they “are not pressing the panic button.” Another executive expressed frustration with Norpac’s action, noting that American publishers have few American companies to turn to for paper other than Norpac.
RISI’s Maine suggested that publishers need to look for alternative sources of supply and think about using different grades of paper. One possible source of supply is Europe, but that will take time to set up, he added. Maine also recommended that publishers plan for longer lead times when ordering paper.
At present, publishers said their publishing schedules have not been affected by rising costs and supply shortages, but they are keeping an eye on what the ITC will do. “We need to be patient and see how things unfold,” one executive said. What is not on the table, he added, is passing the higher costs on to consumers: “Raising book prices is the last thing we want to do.”