Coated papers: it's a brand new ballgame.

High capacity and plenty of competition have long made coated paper a buyer's market. Its longtime status as a "commodity" grade means coated paper producers must constantly stay in tune with a full roster of market influencers--including printers, publishers, suppliers, consumers, and even postal services. Current economic conditions continue to affect each of these players in distinct ways, making it sometimes tough to predict market changes.

Solutions! magazine called in the experts for some "color commentary" on market trends in coated papers. In this article, we examine how changes in magazine and catalog advertising are affecting the overall market, and we look at European market trends and customer demands that are affecting coating pigments use. Next month, we focus on technical trends such as on-line coating, digital printing, and new coating methods.

IT'S IN THE MAIL

The primary driver for the coated paper market is print advertising. Unfortunately for coated paper producers, print advertising dropped dramatically in 2001. Most major manufacturers have suffered through market-related shutdowns during the past year.

In addition, rising postal rates put even more pressure on magazine publishers to cut excess circulation and reduce the weight of each publication. ultimately, the pressure is on papermakers to somehow manage to contain costs in the face of more particular customer specifications and declining demand.

According to Denise Olson, technical customer service manager at Blandin Paper UPM-Kymmene, Grand Rapids, Minnesota, USA, "when discussing these trends with the magazine publication marketplace, the most common response is that we simply don't know what the future holds. In the past, it was more common to see market projections with an upturn in the first or second quarter than our currant response. Although the optimist in us wants to believe there's a light at the end of the tunnel, the reality is that we are working with short order books at paper mills. In these days, cost containment is the key It has become even more vital to reduce costs with improved efficiency and squeezing paper formulations. All this is being done in an environment of intense product quality scrutiny. We're also seeing a trend towards improved pressroom waste and runnability performance."

Yun-Long Pan, product development manager, Smart Papers, Hamilton, Ohio, agreed. "During the recent recession, the advertising market slump affected coated paper demand badly," Pan commented. "Recently, paper prices became one of the most important decision factors, and we have seen a lot of down shifting in quality, to reduce cost. Coated paper segments lost share to lower quality grades. This kind of pressure forced coated paper manufacturers to cut costs. The reverse auctions for paper as well as for coating materials have put a lot pressure on the whole paper industry as well. It seems that consolidation in the industry is going to continue until an optimum supply/demand balance is established."

In response to this pricing pressure, Pan predicts the industry will be working to develop better coated surfaces for printing at reduced costs. Efforts will focus on more economical clays, finer ground calcium carbonates (GCCs) and precipitated calcium carbonates (PCCs), more cost efficient glossing aids, and cost effective coating binders.

"We have also seen advertising customers demand higher brightness and bluer shades, especially on the high end coated grades. This trend will lead the industry to adopt alkaline sizing base paper chemistry if they are still in acid, use more calcium carbonate as fillers and as coating pigments, and demand higher brightness clay pigments and more efficient optical brighteners. Brightness reversion will become even more of an issue for papermakers producing elevated brightness levels."

Added Olson, "there's also significant interest in lower cost paper grades for substitution from coated grade 5 to FCO (film coated offset) or SCA +. Even a slight product quality reduction is perceived by most magazine publishers as unacceptable. There simply are not enough good quality products in the lower basis weight and lower grades to successfully achieve these grade replacements. We have seen a severe reduction in inventory levels that is likely to stabilize in the coming months."

Problems with the distribution channels for magazines in the United States also have a deep impact on the market for coated paper. About 75% of all magazines in the United States are delivered by the U.S. Postal Service; the other 25% are purchased from retail outlets such as grocery stores, newsstands, and drugstores. Both channels are flawed, according to Robin McCann, director of marketing. Omnova Solutions Inc., Akron, Ohio.

"Magazines that are sold retail in the U.S. suffer from anemic sell through (or the number copies actually sold on the newsstand)," she said. "The average sell through is about 35% to 38%, so for every 100 copies sent to the newsstand by the wholesaler or publisher, only 35 are sold, resulting in losses for the publisher. Wholesalers are dealing with this problem by reducing the draw (or the number of copies sent to the newsstand) of many magazines, as well as culling low volume titles from their magazine racks."

Catalogs have long been the other staple of the coated paper market, but changes in demand, distribution, and customer habits have had a serious effect on coated paper demand. The news here is not all bad, however while many publishers are looking to reduce costs by trimming catalog size and cutting distribution--or even eliminating mailing completely, relying instead on Internet distribution--others have refocused on creating a "specialty catalog" image.

"This market segment is producing high quality specialty catalogues, profiling their products in a seemingly 'rich' manner. Expenditure in paper grades and high basis weight seems to be the trend here. In this market, it is more affordable to buy the higher grades of paper that highlights their product even better. This is a prime opportunity for a retailer to improve their image, assuming their current pocketbook allows this tactic," said Olson.

Even the Internet can spark demand. "In one case, it was found that users sit at their computer with a paper catalog, enter in the item number they have selected, and then hit the 'send me a catalog' button," Olson said. "The impact on paper demand with this trend is positive [and] is expected to increase until either the Internet speed increases to acceptable 'shopping' speeds or the 'Game Boy generation' starts to dominate the catalog buyers market."

Escalating postal rates will keep the focus on cost for magazine and catalog publishers alike. "With postal rates continuing to increase, both types of publishers find it necessary to look for ever lighter weight yet bulkier coated sheets to control mailing costs. At the same time, both are challenged to maintain high print quality standards to maximize the appearance and impact of their publications. This translates into new demands for coated paper manufacturers to develop lighter weight products that maintain bulk and print quality," said Rick Schneider, manager-catalog marketing, Coated and SC Papers for International Paper Co., Memphis, Tennessee, USA.

Lower basis weight requires less fiber weight and more bulk for good readability. To preserve bulk, wood-containing coated grades with easy-finishing coating formulations would be most suitable, according to Smart Paper's Pan. "In order to develop a good printing surface on a wood-containing sheet with high bulk, hot soft nip calendering is probably preferred to supercalendering, and easy-finishing coating formulations as well as the underline coating ingredients should be in demand," he said.

EUROPEAN FASHION TRENDS

The needs and preferences of customers--including printers, publishers and, ultimately, consumers themselves--create the marketplace demand that drives development of new and improved coated grades. Current trends lean toward the European style of a brighter, bluer sheet with somewhat lower opacity; though lower ad page counts mean that printers are not willing to sacrifice bulk. These trends have a strong impact on papermakers' use of coating pigments.

"The higher brightness and bluer shade demand directly shapes the choice of coating pigments," said Pan. "Calcium carbonates (PCC and GCC) are of much higher brightness and bluer shade than clays. Therefore, the use of calcium carbonates instead of even premium grades of clays requires less optical brighteners (OBAs) and the carriers to achieve the desired targets. This could translate into significant cost savings. In addition, the brightness reversion will be much better with calcium carbonates simply because of the lower OBA presence."

Papermakers who want to reach new standards for brightness and blueness can get partway there through dye loading; but less expensive, lower brightness pigments will not really help. Still, "it does not necessarily drive the demand for higher brightness pigments since this is occurring in a weak market where cost control is vital to long-term viability," noted Olson. "The days of improving quality at all cost are gone. It seems that the magazine and catalog industry understands the need for cost control in paper production and actively participate in product development efforts.

"The other interesting trend is the alteration of coating formulations to achieve good coater runnability. There is a tremendous focus on performance metrics in paper manufacturing and the printing plants. Paper defects are scrutinized heavily and formulations will be altered to avoid them. Therefore, coating formulations need to flow well at speeds in excess of 5000 ft/min. These same formulations also need to provide a good printing surface to achieve the best ultimate product," she added.

"It was believed years ago that the percentage of calcium carbonates in a typical coating cannot exceed certain amount for ideal gloss, smoothness, and ink holdout," said Pan. "However, the 'European' style coatings, with a very high percentage of calcium carbonate pigments (PCC and GCC), clearly demonstrate they are not only runnable, but also able to yield very good surface with superior print quality. This explains why the European coating technology is gaining popularity in the United States."

Another way to achieve brightness is to apply multiple coatings. More pigment is used per ton of paper, for a higher coat weight. "In general, European multiple-coated papers are brighter, but lower in opacity than comparable North American coated grades," explained industry consultant and TAPPI Editorial Board member Charles P. (Chuck) Klass. "Printers and publishers don't necessarily perceive the European style coated papers as 'better.' One significant problem is the lower stiffness of European multiple coated papers, which can cause handling problems on press and in the bindery."

International Paper's Sharad Agarwal, product manager-coated freesheet products, coated and SC papers, noted that these changes in coating formulations have led to the creation of products that challenge the distinction between traditional product categories. "For example, some sheets with brightness levels typically associated with a #2 coated freesheet are now positioned in the marketplace between #3s and #4s."

It is not surprising that these trends and preferences ultimately come down to matters of cost. "Many of the 'European' designs are cheaper due the high coat weights, high filler contents, and low amounts of premium pigments (titanium dioxide and plastic pigments). However, some of these designs are not acceptable in the North American market due to low opacity and lack of stiffness, for example," said Dean Benjamin, product development manager for Stora Enso North America, Wisconsin Rapids, Wisconsin. "The local pigment economies also dictate product design. Carbonates and talc are relatively cheaper in Europe, so they are more widely used there. As these European products gain market acceptance here, the trends of higher carbonate contents, less premium pigments, and higher ash contents will likely follow."

IN THIS ARTICLE, YOU WILL LEARN:

* How downturns in magazine advertising sales and catalog shipments affect the coated paper market

* The properties that publishers are looking for in coated paper

* European trends in coated paper properties, and the minerals used to achieve them

ADDITIONAL RESOURCES:

* For books and CD-ROM materials about coating and coated papers, visit www.tappi.org and click on TAPPI Press.

* For information about, or proceedings of, TAPPI's 2002 Coating Conference, May 5-8 2002 in Orlando, contact Karen Van Duren, [e-mail]

* To learn more about TAPPI member groups and discussion boards for coated papers, visit www.tappi.org and click Paper Coating on the menu bar below the logo.