2009 Paper Prognostications

Recently, I was asked a series of questions about the paper market and where it is heading in the near and long term.  I thought I would share some of my answers with you.

Q:  What do you see as far as paper prices for the first quarter?
A:  I see paper prices as a whole going back down to the levels we saw during the 2nd quarter last year.  That would mean a drop of about $40-$60 ton overall.  Coated groundwood will drop faster and perhaps farther than coated freesheet will.  But how much depends on where supply and demand are. 

Q: How would you describe the current conditions in the market as they relate to paper prices, supply and demand?
A:  Right now, demand has dropped MUCH faster than the coated mills can cut their production and inventory levels.  This has led to shorter than normal lead times, excess inventories, and reduced prices across the board.  Since most, if not all mills are still not turning a profit (despite such dramatic price increases over the last six quarters), I believe they will try and hold the line on price.  In order to do this, they will attempt to reduce capacity to a point more in line with demand.  This could be very tricky, as demand continues to decrease at a rapid pace with no apparent bottom in sight.

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