For those of you out there that aren't aware, there have been several price increases just this year in the paper and pulp markets.
The supply side of the free sheet market has diminished over the past few years and now the paper market is in a crisis. Mills are unable to keep up with demands on free sheet product.
Thus causing a supply and demand issue, which everyone know when the demand is greater than the supply, prices will get squeezed.
Prices on product for the most part had remained steady for the past decade with minimal increase and only about once a year.
This year being the exception. However, the trend seems this year will be completely different. This article published in pulp and paper weekly explains the reasoning for such increases.
OAKLAND, CA, May 25, 2018 (PPI Pulp & Paper Week) - A new $50/ton May price increase began taking effect for North American uncoated freesheet (UFS) paper this month with virtually no equivocation from buyers, contacts reported. Customers continued to face scarcity of supply and lengthening mill backlogs.
Papermakers were holding customer orders to historic averages for both offset and cutsize paper, and have machine backlogs of up to 60-90 days, mill and merchant contacts said.
"UFS rolls are super hard to come by and delivery dates are pushed out," one contact with a major commercial printer confirmed.
"There's not enough paper to go around ... hard to believe," one merchant source said.
"There's no delays and no negotiations (on price)," another merchant contact said. "It's not a question of pricing, it's a question of can you get the order in, because if you don't, you're out in July.
"There seems to be more panic in the air," a mill source said. "I'm getting crazy phone calls. You can hear the panic in their voice if they don't have a position – there's desperation to get tons."
Buyer sources emphasized the importance of supplier and mill relationships in the new market dynamic.
"Customers who ran to the lowest price are coming running back, but people are not quoting for them," one merchant source said. "If you're not an existing customer, you just don't get (paper). Mills can't entertain any new business until they catch up and they don't know when that is going to be."
"Mills are sold out on commodity/commercial offset basis weights … current shipping dates can range from August through the end of 2018," another merchant contact said.
"We're typically out a month (on backlogs) but we're pricing orders in August ‒ and August will most likely be full by the time we get started in June," one mill contact said.
Move to opaques. Mill sources said they are trying their best to accommodate customers with paper, and product mix is a part of that.
"You may be able to get value-added tons but not commodity tons," one merchant said.
"Some people are moving up to higher quality if they don't have a floor position or customer inventory position, for example by moving to opaque from offset," confirmed a mill source.
"(Customers) are buying higher-priced brands if they can't get commodity offset. We're seeing a huge increase in opaques – at least double our previous orders," another mill contact said. "We hope end users like the higher quality product and decide to stick with it."
Contacts said supply has dried up faster than suppliers' ability to meet demand, and the ensuing tightness is being compounded by mills taking maintenance at what is historically a seasonally slower time.
"Some are late in delivering orders in an already stressed system coming off seasonal maintenance outages," one source said.
Contacts also said some manufacturers who were tempted to postpone machine maintenance and continue running flat out have reportedly experienced equipment issues and/or product rejects that required shutdowns.
"When you get tight, then (maintenance) really gets problematic. It doesn't take much downtime to get things out of whack," a mill source said.
A fall supply crunch? "They're having problems keeping up," a merchant source observed.
Merchant sources also said they worried about some customers' difficulty understanding that "prices don't always go down," and inability to plan ahead given concerns about a supply crunch at the end of the summer.
"We have some customers totally insulated from the market who don't understand why they can't get paper in two weeks," one merchant contact said.
Most domestic UFS producers' increases became effective in the second or third week of May, so a full month of implementation is not yet in place. Also, according to supplier sources, a lot of customers start paying the increase next month, with the largest portion in June and the rest the following month when the new quarter starts. Those who saw an immediate increase estimated prices have increased $40-50/ton in the past 30 days.
"I think the full May increase will go through. It might take two months, but it will go through," a commercial printer contact forecast.
Many sources also spoke of the likelihood of another increase later in the year.
"Look at the projected UFS decline and overlay that with what's scheduled to be taken out and I can't see anything changing any time soon ‒ especially with the pulp market pushing up raw material costs," one said.
"We're really worried about the fall. Come August-September, mills that have been robbing Peter (from inventory) to pay Paul won't be able to pay Peter," said another merchant contact. "UFS supply will loosen up a bit in June but if the smart people fill up, inventory is flushed out of the system, and with the uptick in demand, I will not be surprised if we see another increase in the fall."
"Buyers think you're making millions of dollars when the price goes up, but with the price of fiber, we really need increases," a mill contact said. "We're certainly not where we thought we'd be. It's a period when you try to get your commodities lined up to get through the next trough."
Cenveo set a 5% price increase on all envelope grades effective with July 2 shipments, citing ongoing market conditions and the rise of raw material costs including paper and freight increases. "These are challenging times for our industry with material increases and continued unprecedented issues around freight capacity and