Laws of supply and demand rule world of copier papers.

One would think that copier papers would be a "booming" growth market for the paper industry. With the introduction of new imaging technologies and the proliferation of inkjet, laser, and digital printers, it would seem that this market would be growing. Alas, a depressed economy characterized by stagnant growth and instability, along with a significant supply imbalance, has left this market feeling the sting of the basic laws of supply and demand.

Copier papers include Bond No. 4 paper, inkjet paper, LaserJet paper, and reprographic papers. Offices of all shapes and sizes are the primary users of copier papers. Although it is difficult to get hard figures about copier paper tonnage and sales, it is safe to say that shipments of copier papers have declined in the last three years.

In the U.S., demand for this grade of papers is estimated to have reached an all-time high in 2000 of 5.65 million tons, and has not reached this figure for the last three years. Moreover, demand for copier papers is down not only in the United States, but also in Canada, the countries of Western Europe, and even in Japan. Moreover, the worldwide supply of copy papers far exceeds demand. Despite the mergers and consolidations of the last five years and the removal of more than 3 million tons of paper from the marketplace, a serious supply imbalance still exists.

COMPETITIVE MARKETPLACE

It was slightly less than 30 years ago that major business magazines headlined a bold trend in U.S. industry. The headlines read: "The paperless office of the future is now at hand!" So much for bold predictions!

Today, offices throughout the United States are still big consumers of paper, especially copier paper. Percapita consumption of office paper in the United States is nearly 52 pounds per year, according to Minnesota Office of Environmental Assistance. This state agency adds that within Minnesota, nearly 550,000 tons per year of high-grade office paper is consumed.

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The companies that manufacture and market copier papers in the United States are among the largest in the world. International Paper leads the pack, followed by Weyerhaeuser, which is the one of the largest manufacturers of business and converting papers in the world, and Domtar, which is the third largest producer of uncoated freesheet paper in North America.

With these large players, and a declining demand, competition within the copier paper marketplace is intense--particularly since customers find it difficult to differentiate one product from another. While today's copier papers are, for example, carefully moisture-balanced to stop smearing and fuzzy reproduction, consumers are still prone to view these papers as commodities.

If there is one bright spot in the copier paper market-place, it rests with a growing demand for specially formulated papers that can be used on color inkjet and laser printers. Georgia-Pacific Corp. says that its 24-lb, 92 brightness Inkjet printing papers "are designed with a special surface treatment that minimizes bleeding and fuzziness and provides better clarity and contrast."

BRAND MARKETING

In the highly competitive world of copier papers, marketing goes hand-in-hand with manufacturing. "Brand marketing" is the key tool manufacturers use to distinguish one copier paper product from another and get consumers to purchase their products. In simple terms, "brand marketing" seeks to establish a brand name in the minds of consumers. The brand name represents a "quality product," with a "good reputation," and is one that consumers will buy repeatedly.

Generally speaking, there are two types of copier paper purchasers. One is the office manager who purchases a white copier grade paper that can be found in any distribution channel. This person is usually concerned with price and service, although he/she also is concerned that the "brand papers" perform efficiently and effectively.

FOCUS ON QUALITY

The second purchaser type distinguishes between grades of paper for different uses. This purchaser sees a quality difference among the various copier papers used on different printing image technologies. This customer is loyal to the supplier that provides sample information, identifies specific grades for specific end-uses, and provides superior service. Price is not really a big factor in this purchaser's selection process.

In marketing copier papers to consumers, paper companies will stress the importance of paper to the end use. For example, on company says in its advertisement, "You can print any document with beautiful colors, creative fonts, and vivid texts .... because there is a paper designed for you in mind."

Companies often assign exotic-sounding names to their papers to distinguish their brands from their competitors. In the multipurpose copier paper line, for example, International Paper Co. produces a multipurpose paper that competes with: Xerographic, Spectratech, Cascade X-9000, Spectrum D-P, and Husky D-P. In addition, inkjet, laser printer manufacturers want to capitalize on their brand names by telling consumers that they have a specially formulated paper that works best on their colored inkjet, laser, and digital printers.

MANUFACTURING SCALE

When it comes to the manufacturing of copier papers, the industry produces these papers on large, high-speed, high-yield paper machines. International Paper Co.'s machine in Riverdale, Alabama, USA; Weyerhaeuser's new paper machine at Kingsport, Tennessee; and the Domtar machine at Ashdown, Arkansas are prominent examples of the type of machines that manufacture copier paper.

With a drop in demand and an increase in competition both from within and without the United States, copier paper manufacturers have been under great pressure to meet a universal goal--reduce costs, improve quality, and increase output. It is no exaggeration to say that the paper companies who manufacture copier papers have met this challenge.

Reduce costs--The old saying of "do more with less" has pervaded the paper industry since the dawn of 20th century. The price per ton of the bellwether 20-lb copy of reprographic papers with 84 brightness has dropped from US$ 860/ton in 2000 to the current levels of US$ 770/ton. A careful reading of the annual reports of copier paper producers reveals that manufacturing costs have gone down because the retail prices paid by consumers have dropped, yet the companies still make a profit.

LOW COST STILL KEY

One other factor worth mentioning from a competitive standpoint is this: Although copier paper manufacturers employ sophisticated marketing efforts to distinguish their products by names, marketing slogans, brightness and acid-content, these same manufacturers know that being the low-cost producer is a real advantage to the bottom-line.

Improve quality--Paper manufacturers have worked closely with copier and printer manufacturers to produce papers that will work in their machines. Technology companies such as Canon, Hewlett-Packard, Xerox and others are producing copiers, inkjet, laser and digital printers whose success depends as much on paper technology as it does on printer technology. This partnership allows manufacturers to identify emerging technological challenges and make products that meet these challenges. SmartPapers. Hamilton, Ohio, for example offers a 90-page booklet entitled Digital Printing on Demand, and one aspect that is prominently addressed in the book is the proper selection and use of papers for digital printers.

PAPER IMPORTS

Even as U.S. copier paper producers fought a stagnant or depressed economy and sought to reduce production capacity and increase operating efficiency, their efforts encountered a new obstacle in the supply and demand equation--imports. Copier paper imports to the United States came primarily from Brazil and Indonesia.

Brazil, besides being the world's third largest producer of market pulp and a major exporter of short fiber eucalyptus pulp, is also an important manufacturer of printing and writing papers, with uncoated woodfree papers being the country's largest segment. Although the actual tonnage of exports has dropped in recent years as Brazilian producers converted to coated paper production, the country's export of cut-size copier paper to the United States has been fairly consistent between 2000-2003, averaging about US$ 943 million/year, according to the BRAZELPA, the Brazil Pulp and Paper Association.

At the same time this was occurring, Indonesian exports, coming primarily from Asia Pulp & Paper's huge mills, gained a strong foothold in the U.S. Indeed, the company was the major supplier of copier paper to all the Office Depot stores until just recently, when APP's environmental record prompted Office Depot to cease using Indonesian paper exports.

Perhaps the most starting fact about the Brazilian and Indonesian paper exports to the United States was that these countries could produce the paper, ship it to the U.S., distribute all over the country, and do it at a lower price than U.S. producers. Granted that currencies and wages make this an inadequate comparison, but the business facts speak for themselves.

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So what impact did these imports have on copier papers and prices? In the world of free trade, where the laws of supply and demand rule, the importation of cheap white business papers was seen as another way of undercutting attempted product price increases. If any U.S. producers decided to raise prices on copier paper, customers could always look to these imports. Also, the quality of the copier paper coming from Brazil and Indonesia was equal to, if not better than, the quality of white papers manufactured in the United States.

GREAT EXPECTATIONS

Small office/home office stores, paper merchants, office supply dealers, and original equipment dealers, such as Xerox and Canon, sell copier papers. With the depressed U.S. economy still trying to rebound, the demand for copier papers is declining, cheap imports coming from Asia and Brazil, are there any hopes for this grade of papers? No sooner said than done (see sidebar on page 00).

Two things are important to note about the expectations for office papers in 2004. First, copier paper manufacturers have been predicting a rebound in this sector for the last three years, and the results have been abysmal. Predicting a rebound in copier papers is almost like predicting a World Series Championship for the Chicago Cubs or Boston Red Sox 

Second, there is an old adage that holds true for office papers, "Cut-size paper demand tracks white-collar employment." Although the overall economy in the U.S. is picking up, white collar employment is not. This is prompting copier paper manufacturers to hedge their bets that demand will increase and they can raise prices.

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So what's the outlook for copier papers for 2004 and beyond? Are there any reasons to expect anything but that which has occurred in the previous three years? If the positive results from the first two months of the year hold firm, 2004 will be a "rebound year" for copier papers. The tough question is whether the current rise in paper shipment will prompt manufacturers to raise prices or whether the supply/demand equation for copier papers will continue to keep prices down. Only time and the economy will tell which of these answers is true.

IN THIS ARTICLE YOU WILL LEARN:

* The supply and demand equation for copier papers.

* The brand marketing used to gain market share in copier papers.

* The impact of Brazilian and Indonesian exports to the U.S.

ADDITIONAL RESOURCES:

* International Paper web site: www.ippaper.com.

* Weyerhaeuser web site: www.weyerhaeuser.com.

* Domtar web site: www.domtar.com.

RELATED ARTICLE: STOP THE PRESSES--DEMAND IS INCREASING

Demand for printing and writing papers increased for the first two months of 2004, and uncoated freesheet papers, whose biggest segment is copier paper, reported the biggest jump, according to statistics from the American Forest and Paper Association.

Shipments of uncoated freesheet papers rose 9.3% for February 2004 compared to February 2003. This increase comes on the heels of a 3% increase in shipments in January 2004.

While these positive results are good news for copier paper producers, Mark Wilde of Deutsche Bank, New York City, cautions that two consecutive monthly increases do not portend a significant turnaround in the demand for and increased prices of uncoated freesheet papers.

On the other hand, this is probably the first good news for this sector of the paper industry since 2000.

The printing and writing paper sector has waited a long time for these results, Wilde said. He added the inventories for printing and writing papers are also dropping, and this is a good sign for manufacturers who want to raise paper prices.

JEROME A. KONCEL, CONTRIBUTING EDITOR 

ABOUT THE AUTHOR:

Jerome A. Koncel is a contributing editor for Solutions! magazine. A freelance writer, he has more than 15 years of experience covering the pulp and paper industry and was editor of American Papermaker. Contact him at [phone] or by email at: [e-mail]