Merchants bust through with paper price hikes

Australia's major suppliers kick off 2006 with a rise in the price of paper, and this time they insist the changes will stick.

Paper merchants have battled with declining prices and eroded margins for well over a decade, with Gerry van Wyngen, CPI chairman, claiming last year the industry is experiencing “most savage margin squeeze in history.”

While getting customers to accept price rises has proved a major problem in the past, the beginning months of 2006 has seen almost every major Australian paper supplier bring in an increase to the price of their stock, with more movement promised as early as three months time.

CPI was the first cab off the rank implementing changes to its pricing, striking out on its own on January 1, to ratchet up the cost of its stock by an average of three to five per cent, depending on the grade.

According to David Bull, marketing director for CPI Group, the eternal question for the industry, as to whether the prices will stick, no longer applies.

“At this point the prices are holding, and they just have to hold,” says Bull. “Paper pricing is at an all time low the moment, and has dropped some 25 per cent from what it was priced 16 years ago.”

“I think printers have developed an understanding of the low margins the merchants have been pulling in, and the market has generally been quite accepting of the price increases,” says Bull.

While CPI took a risk in trying to set the agenda on the issue, Bull claims the rest of the market will be quick to catch up, and maintains that further price movements are not too far down the track.

“CPI envisages another price rise in the near future, certainly within the next six months but possibly as early as May,” he said. “There is a definite need for more [rises] so merchants can maintain existing services and delivery requirements.”

The rest will follow

As predicted by Bull, the rest of the local market is indeed catching up. PaperlinX merchant Dalton was another to welcome in the new year with a price rise on January 16, 2006, while sister company Spicers joined it on the same day with an increase in the three to four per cent range across its spectrum of products.

Greg Street, general manager for Spicers Paper, claims the rises are inevitable following several years of downward pressure, and emphasises the cost of oil as the main motivation for the movement.

“The price of oil is definitely the big issue here,” says Street. “Its impact can be felt across a whole range of areas, including freight, manufacturing and delivery costs.”

In terms of making the rises stick, Street is another voice that insists the graphic arts industry has no choice but accept the movement.

“How customers will respond to price movement is always an issue when the market is tight, but in this instance it's a case of drastic necessity. So I think we'll see them stick this time around,” says Street.

While Edwards Dunlop lagged a little behind CPI in implementing its changes, its customers were advised last December of the rises to take effect from February 1, 2006. Rises across its range came in at between one and five per cent, with average rises between three to four per cent.

The price rise we have to have

Tony Dragicevich, managing director of Red Paper Group, claims customers have known such a rise was imminent for quite some time, and that they understand current prices are unsustainably low.

“You only need to look at the financial results of public merchants like PaperlinX to see that earnings are at their lowest ebb, which are unsustainable for the industry as it moves forward,” says Dragicevich.

On the topic of whether the merchants can make the rises stick, Dragicevich insists the industry can no longer hold out with prices at their current level.

“What the industry needs to realise is that coated prices have fallen by as much as 15 to 20 per cent in the last several years,” says Dragicevich. “Unless these changes stick there will be no merchants within a years time.”

K.W. Doggett also upped its prices at the beginning of this month, this time between two to four per cent. Simon Doggett, director of K.W. Doggett, claims there are definitely additional price hikes on the horizon.

“There have already been some increases from our suppliers, which have not yet been passed onto our customers,” says Doggett. “So the market should definitely expect further price rises.”

Price movements at Melbourne merchant Focus Paper were effective from February 6, 2006, at approximately three to four per cent across the board.

Paper supplier Stora Enso is introducing price rises to its assortment of stock throughout February, in the range of two to three per cent, and confirm that more cost movement will be seen by the middle of the year.

While Sappi is one of the few local merchants to not yet implement a price increase, the company's international operations have announced a rise in the cost of its woodfree coated sheets and reels by five per cent, introduced during February for its European and overseas markets. The company attributes the rises to ongoing cost increases of raw materials and energy.

Tim Schafer, Sappi Trading in Australia, says the North American and European increases will most likely be passed onto the local market.

“We have no official announcements at this stage and no timeline for the increases, but we would expect the price rises from our overseas operations to move through to the rest of the world pretty soon,” says Schafer.