My printer tells me that the price of paper is increasing so my printing cost is going to rise. Is that true? There is only one industry that I enjoy “ragging on” as much as the Vanity Presses and that is the paper industry. The short answer is, yes, paper prices are increasing.

I have been in the printing industry for well over 30 years. In all the years of doing this, I don’t believe that I have ever heard a paper salesperson say anything other than, “The mill is talking about a paper increase”, when asked about pricing. Paper is a “cyclical” commodity. My personal observation is that this “cycle” swings all the way from the paper mills ramming it to the printer to the printers being more than willing to return the favor by ramming it to the paper mills. We have only hit these extremes a handful of times over the course of my career. Both extremes of the swing have a tendency to get ugly and, more often than not, result in many companies going out of business. Paper makes up 50% or more of every book printing project. Any drastic changes in paper pricing puts extreme pressure on the entire publishing industry.

In the case of offset paper, a mainstay of the publishing industry, the price point where everyone seems to be happy is thirty-three to thirty five cents per pound. (You buy paper in the office supply store by the ream; printers buy by paper by the pound.) At that price, the mills seem to make enough money to keep their shareholders happy and the printers and publishers can make enough money to stay in business. The extremes of this price vary from twenty-five cents per pound, on the low side, to the mid forty cent range on the high side. In the past three months, paper has gone from the low thirties to the high thirties and is threatening to go into the forties.

Why so high? Aren’t we still in a pretty bad economy? Hasn’t much of the demand for this type of paper disappeared with the growth of the Internet? Isn’t this demand decreased further with electronic tax filing? This is how it works:

Unlike printers, who number in the tens of thousands, there are only a handful of paper mills making the papers used by the publishing industry. It doesn’t take much imagination to picture a group of paper executives, sitting around a table at a yearly meeting in New York, smoking cigars, discussing how they are going to fix prices. Of course price fixing in this country is illegal, so the mills have to take a few extra steps to get around this minor technicality. Keep in mind that paper is basically a commodity. The 50# white offset from Mill A is almost indistinguishable from the 50# offset from Mill B. If mill A’s price is higher than Mill B, everyone buys from Mill B. The only way price increases hold is if all mills raise their pricing to the same level. If one of the mills does not go along with a price increase, the chances are the others will not raise prices either. If all the mills work together in keeping prices up, there is little the consumer can do to stop it until one of the paper mills breaks from the pack and starts offering lower pricing. Since the early 90’s when the price gouging got so bad the Justice Department threatened to get involved, most of the smaller mills have been bought by larger mills making the total number of “players” in the paper game smaller than ever.

Price increases always start the same way. One mill will announce a price increase. I don’t know whether the mills get together and draw straws or what but it always starts with one mill. The reason for a particular increase seems to be selected from a list of “talking points” that has not changed much in the last 30 years. These reasons vary all the way from the economy is too good to the economy is too bad, and everything else in between. For the most part, these reasons are pure nonsense. The one I always liked the most was “the price of pulp has gone up”. Sounds believable enough…. Those nasty pulp suppliers… until you realize that these same paper mills own the pulp facilities so they are basically raising the price to themselves and trying to pass it on to the consumer. There are many more examples.

The price increase is never announced for immediate implementation. It’s always some date in the future. The reason for this, of course, is to give the other mills a chance to raise their prices as well. The price increase does not work if only one mill does it because the printers will just buy from another mill. The idea is to get the printers to take the bait and accept the increase. If the mill tells a convincing enough story, maybe the printers will even “stock up”. Shortly after the first mill announces an increase, virtually all the other mills follow with their own increases. Remember, there are over 50,000 printers in the country. If all the printers decide to buy just one more truckload of paper than they normally would, it would equal an order for an additional million tons of paper. If the paper companies can produce a “real” shortage they can start really putting the screws to the printers even more and announce “moratoriums” and “allocations”. Once you sell the printers on “allocations”, the mills seem to issue themselves an unofficial license to steal where the sky’s the limit. The ultimate irony is established where instead of the paper salesperson taking the printer to lunch and asking for a paper order, the printer is taking the paper merchant to lunch and begging them to sell them paper at any price. Many a paper salesperson’s mortgage has been paid off during times like these.

Unfortunately for the printer, there are too many printers for them to attempt similar price fixing. . The small to medium printer gets hit the hardest. The largest printers are under contract with the paper mills. Temporary paper pricing run-ups actually represent a profit windfall to the largest printers because they have contracts with their large publishing customers to pass on announced paper increases even though their actual cost from the mills stay the same. The small to medium sized printer faces the prospect that every attempted price increase usually opens their customer’s door to every printing salesperson with a business card and a promise of competitive pricing. This “reality” causes most printers to absorb the first few paper increases in hopes that they will only be temporary. Unfortunately they can’t keep absorbing these increases forever if they plan on staying in business.

As of July 1, 2004(and now again on March 6, 2006), many of the paper mills have printers and large publishers on allocation. The mills have already announced additional price increases for later this year. The prices seem to be holding, although nobody seems to know exactly why. Most printers are beyond the point where they can absorb any more price increases without passing them on to the publisher. The mills are sitting on the capacity to make more paper but show no signs of producing beyond today’s level and are committed to driving the prices up even farther. The Justice Department is doing whatever the Justice Department has been doing since dropping the last investigation into the paper industry. What’s going to happen in the meantime is only a guess. The one thing I know for sure is that one of the mills will eventually break ranks and drop pricing. The printers and publishers who are left at that time will be more than willing then to drive the pricing right down to new lows with the same amount of compassion that the paper mills had for the printers and publishers as they were driving the prices up. In the meantime, hang in there and don’t holler at your printer too much when they ask for a price increase. It’s not their fault.

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