When does it Stop is the Million Dollar Question! No one I have contact with has been 100% happy with the daily increased pricing we have all seen in the past months. This goes for those of us in the paper industry and those in non-related industries.
One thing is sure, the future is UNCERTAIN.
Speaking with several mills, all of which seem to be running at 100% capacity. This is likely driven by the huge bounce back in the economy, post-COVID pandemic. Another factor is that the paper mill’s manufacturing capacity is nowhere near what it once was. The result is remaining mill’s production schedules/capacities remain full.
Is this about to change?
Here are a few of my thoughts:
- Rising interest rates, by the Feds, mean the cost of borrowing money for operational capital is on the rise. This results in a higher payment each month on borrowed money, compared to 6 months ago. Will this result in a “re-think” of companies’ paper strategies and a potential cancellation of open and future Purchase Orders, essentially limiting the amount of borrowed capital?
- Was there a Hoarding of Paper in the US? I believe this is a driving factor in the Mills being at 100% capacity. However, I know that some Converters have excess storage facilities to house large volumes of raw material, while others simply don’t have the space. I can’t speak for other companies purchasing habits, but this is a possibility. Second, I can speak to end users ordering much more volume than in previous years. Their reasoning is the hedge against future price increases and prevents future supply outages. This habit seems to be slowing, which could reduce demand for paper mills.
- Outside the paper industry, we are seeing headlines of economic slowings, such as the GDP, both manufacturing and technology companies announcing layoffs, and stock prices dropping.
If the Cost of Living is increased and wages and jobs are going to be flat or cut, consumer demand could see a rapid swing downward. Household discretionary dollars are shrinking, which will result in lower retail, restaurant, and entertainment sales. All of these would result in a lowering in paper demand.
What CERTAINIES do we have? The near future will look and feel different from today!
Will we see pricing reductions on Commodities, driven by shrinking demand? We all hope so!
Although pricing reductions sound like a great idea, I don’t feel we will ever get back to a pre-pandemic pricing level.
Would I love to see a 25% reduction? Absolutely!
Brandon Kent
Vice President
Telemark Diversified Graphics
bkent@telemarkcorp.com
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