It’s looking good on paper – Print21 magazine article

Despite the structural changes of the past decade or so and the loss of key markets, countries are continuing to invest in pulp and paper capacity as the global paper industry decides that it’s not all doom and gloom. Tony Duncan explains why there are reasons to be cautiously optimistic.

A recent survey by the Australasian Investor Relations Association showed on average that fewer than 10 per cent of shareholders now request a hard copy of the latest annual report. One extreme – AMP – believes that just over 1 per cent of its retail shareholders elected to receive a hard copy report when the opt-in provisions were introduced in 2007. And while the reasons will be a mix of cost-saving, cost-shifting, the environment and the utility of digital formats with this shift to web-based reporting, as an industry we cannot ignore this market fact. As the CEO of Stora Enso has said, the good times are not coming back.

There has been a structural change going on in this industry for 10-15 years now. The commoditisation of paper, the ease of colour printing, the emergence of robust and cheap digital communication platforms (not to mention ongoing broadband speed increases) are trends, not uncertainties, that will see a diminishing need for print. That is, the need for corporate print. However, this is not automatically leading to a reduction in printers’ profitability, nor the overall use of paper. These are separate issues that relate to individual business models, and the market demand for printed products.

Profitable printers understand logistics and service-related opportunities, and the continuing replacement of printing for the office by on-site office equipment has provided opportunities that some companies have exploited well. At the heart of the change is the fact that people do not buy communications paper – they buy print. They might be buying the substrate for printing – as they buy toner as the ‘ink’ – but they are buying print.

Those were the days
Paper is a substrate to a printer and it is a medium for an advertiser: that’s all, end of story. Always has been – even back in the good old days with all the watermarked letterhead grades and specialist text and covers. Fortunately back then, when print techniques were less capable, letters were still communication du jour for companies, and digital comms were still in nappies inside ARPAnet. Paper media supported the requisite image a company wanted to portray – and issues such as colour, smoothness and tactility had not been subjugated by the ubiquitous computer screen. It also cost a fortune, and often underpinned the profits of paper companies. (Fifteen years ago, a medium-sized paper merchant could make as much profit from letterhead grades alone as they currently make today selling all papers …)

Those who believe this reduction in demand is an “uncertainty” are, I suspect, going to waste an awful lot of money attempting to turn the tide, while those who accept this is a “trend” will find profitable new niches to leverage their skills and develop new markets using the best attributes of a range of media.

Elsewhere though, the paper industry is restructuring and deciding that things are not entirely gloom and doom with massive new capacity being added around the world. Companies such as International Paper are adding large new capacities in Russia, Brazilian companies are adding 2-3 million tonnes of new pulp capacity, Shandong Sun Paper looking to add another 2 million tonnes in the next couple of years, likewise Nine Dragons is looking to add another 2-3 million tonnes and expand from pure packaging into printing/writing papers. Some of the largest and fastest paper machines ever installed are currently being commissioned.

Even in traditional ‘high cost’ markets in Europe and the US, investments are being made – often focused on pulp/paper and bio-energy investments. These are new technologies and markets as the strategy ‘suits’ understand that competing head on with low-cost producers in Asia or Brazil in many commodity markets will not work. And as the European and North American companies invest upstream in low-cost production capacity, expect to see some of the powerhouse Asian paper producers invest more resources downstream in distribution channels - particularly in Europe and North America (and probably Australia) – as they look to exert more control over access to markets and the marketing of their paper. This is a global business.

Do you promote print or paper?
Combined with new capacity investments – often driven by demand from countries with low current usage per capita – what is interesting are the efforts and differing approaches being taken around the world to minimise the reduction in the use of paper in their traditional consumer bases.
While some countries are focused on the promotion of paper, others have decided that promotion of print is more likely to be successful. I’ve had the opportunity to discuss strategies directly with the people involved in the UK, European and local campaigns, and while the published aims of each are similar, there are differences in strategy and execution. The European and UK campaigns, <www.printpower.eu> and <www.twosides.info>, have joined under the Print Power umbrella to launch both a marketing and sustainability campaigns. Each of the 12 member countries will choose what weighting of promotion of ‘print’ or ‘sustainability’ they believe is appropriate for that country and launch.

Some countries will focus on promoting ‘print’, as research of their target audiences (media agencies, brand owners, advertising/DM agencies) has shown they understand the sustainability/environmental benefits of paper but require a greater understanding of the benefits of joint print and digital campaigns, while other countries’ research has shown these targets don’t have a clear understanding of the sustainability issues relating to paper, and will spend a greater share of their budget on environmental and sustainability education. Interest from the US and Canada has also been shown in picking up the campaigns (they are produced in a manner appropriate for countries as diverse as Italy and UK to run – similar imagery, messages, and ‘modular’ web sites suitable for easy translation).

A near-global campaign is almost possible.