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Return to the April 2009 issue of the SMS Register.

Navigating the 2009 Paper Market

April 2009 — A worldwide plunge in paper demand that started last September has turned into an industry free-fall of idle machines, negative earnings and, finally, a chain reaction of paper mill shutdowns.

Once-robust mills continue to shutter almost weekly, and both printers and publishers face not only limited supplies, but stocks that are being discontinued, frequently with little or no advance notice.

Sappi North America, NewPage and Verso Paper are among those mills that have announced both temporary and long-term closings for some of their mill locations. Like many other paper suppliers, they are doing their best to match supply to anemic demand. A gross excess of plant capacity, excessively high inventories and depressed or non-existent profit margins further exacerbate the supply/demand mismatch. Many mills are losing $100+ million a year, with pockets no longer deep enough to carry them through.

Mills like NewPage and Verso have implemented such internal measures as wage freezes, production streamlining and overall cost-cutting measures, with the goal of remaining competitive and achieving some profit in the weakened marketplace. Yet results have been devastating — imagine a mill closure announcement on a Monday and 1,000 people on the street by that Friday.

Where's the good news in all of this? Absent a crystal ball to foretell an economic and industry rebound, The Sheridan Group companies are fortunate to have a central supply chain manager, Dan Ward, who is carefully monitoring paper stocks for each of the Sheridan Group companies. Interacting daily with the mills, Ward funnels critical information to company purchasing managers and coordinates with them to achieve plant-specific paper objectives.

With flexibility and openness to change as his watchwords, Ward works to leverage breaking industry news in order to obtain stocks sufficient to satisfy our customers’ demands. The relationships he has developed with the mills are an important part of this effort; by listening to what they're saying about existing inventory, discontinued grade types, and what it will take for them to stay afloat, he's learned

which grades are most profitable for the mills to produce, such as FSC or SFI certification grades and other recycled-fiber papers, as well as grades that can be produced at multiple mill locations;
why it's important to consider where paper is made in relation to our individual printing plants, since greater proximity helps us (and the mills) gain efficiencies in warehousing and transportation costs; and
that paper mills are no longer owned by paper makers but by investors, whose goal is to make money. Current market conditions make it essential that we be perceived as a partner to the mills. If we are flexible about paper types, we can capitalize on excess inventories, gain better control of both our costs and our supply, and help the mills in the process.

Regardless of industry highs and lows, Ward is always looking to develop alternatives that control or lower costs for our valued customers. If you’d like us to review your paper requirements in light of this highly volatile marketplace, please contact your account executive to arrange it.

Return to the April 2009 issue of the SMS Register.

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