Happy Days are Here Again--For the Paper Industry

Customers Can't get Enough of that Pricey Paper

The paper industry is a cyclical industry, whose prosperity fluctuates in an exaggerated reflection of the nation's prosperity. The industry began climbing out of the recession after the first quarter of 1994, and most companies are reporting healthy profits for 1994 instead of the losses they saw in 1993. Even though production is close to capacity, shortages exist because demand both here and abroad has risen. Some customers are on allocation. Paper prices have risen sharply as they always do in times of shortage, approximately doubling over the past year. Pulp prices have risen just as sharply, and are now higher than they have been in the last 25 years.

Canada's paper industry began recovering in 1994 too, but not till the end of the second quarter. 1995 looks rosy.

The growing demand for paper in the face of shortages will stimulate the recovered paper industry and cause it to "dig deeper into the waste stream," according to the May Progress in Paper Recycling, on p. 22. Most of the large, easy-to-collect sources of good discarded paper are being exploited already, so the next step is to collect from homes, which are not as good at separating papers. This will make recycled fiber more expensive.

The price of newsprint has risen three times as fast as it ever has before, and there is no end in sight. But what goes up will come down. Prices will fall, partly because of the way the price increases have affected the newspaper industry, accord ing to an article in the May Papermaker (Ross Hay-Roe, "Price-Elasticity of Demand," on p. 14). Hay-Roe says that "sharply higher newsprint prices generate increases in advertising rates, which reduce the advertising (hence, newsprint) volumes. They also generate circulation price increases, which cuts readership, which not only depresses newsprint usage directly, but also makes the newspaper a less attractive place to advertise, which in turn reduces ad volumes." Newspapers in Houston, Dallas and Milwaukee have shut down because of high newsprint prices.