WHY IS THE COST OF PAPER INCREASING SO MUCH?

March 1, 2019

This past year the paper market has experienced the most significant changes in more than 20 years. Some say it has not undergone this amount of disruption since the 1970s. A combination of market drivers have contributed to paper price increases totaling as much as 20% or more over the last 18 months. The projection for the remainder of 2018 and 2019 is for continued market tightening and upward price pressure.

 

MARKET DRIVERS:

Mill Closures: With the recent closure of several mills, 97% of the coated free sheet market is now controlled by only three major players. Since 2017, mill closures have reduced the available supply by over 750,000 tons. Today’s paper market does not have enough capacity to support current demand, affecting availability and lead times.

Wood Pulp Prices: According to the US Bureau of Labor Statistics, the Producer Price Index for pulp paper has risen over 25% since March 2018. This increase is not expected to slow down in the coming 12-18 months. Wood pulp prices are up by 45% since Q1 2016.

Transportation: In December 2017, the Department of Transportation required the use of electronic logging devices to record consecutive driver hours. While intended to help driver safety, the reduction in hours had the unintended consequence of reducing overall delivery capacity and increasing costs.

Increased Demand: Demand on paper for direct marketing and packaging markets has increased. While this is good news, the flip side is that in a tightening supply market it’s enabling paper producers to increase prices.

 

LOOKING FORWARD:

Increased prices on paper pulp as well as reduced Mill capacity is expected through 2019. As a result, we anticipate more paper price increases and a continuation of longer lead times.

 

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