As I have stated elsewhere in recent writings, paper grades used primarily for communications will experience a permanent change in demand during the current economic distress. As consumers of all types look for opportunities to delay or permanently reduce expenditures, some will drop the purchase of communications papers products by changing their lifestyle, others will seek alternatives, such as ebook readers or plain old computers to reduce their expenditures.
The physical activities, starting with tree harvesting and ending with a communications paper product in your living room, have just become too expensive compared with reasonably user-friendly electronic delivery methods. We are beyond the “early adopters” now — electronic delivery is becoming widespread. As volume grows, the e-reading devices available will become friendlier and friendlier (and very inexpensive).
The way this scenario plays out will be interesting, too. As we all know, transportation fuels are the Achilles’ heel of modern society. Currently, these are extraordinarily inexpensive. These low costs will keep delivery costs, from forest to mill, from mill to converter, from converter to consumer, artificially low for as long as they last. When economies begin to recover and transportation fuels rise in price, communications papers may at first begin to recover, but then stall as the fuels effect kicks in. It is going to be a painful and slow death spiral in the long run, starting with a drop now, a steady lower volume period, followed by a precipitous drop in a new era of high fuel prices.
Prudent senior leadership will take urgent steps now to be the successful enterprise left standing when the bloodbath is over, for there will, of course, be successful survivors. There just won’t be very many of them. Yet, we can already describe the volume products survivors will manufacture. They are those making paper for desktop or home printers, those making high quality paper for non-time dependent magazines (such as “National Geographic”) and those making extraordinarily inexpensive papers for the lower tiers of society, which have little or no access to computers or the Internet (but even this last category is shrinking fast — there are many homeless now with cell phones and public library access).
There is much talk about forest assets being used to make fuels instead of paper. Some of this will happen, but many are going about it in a wrong way. Why anyone would burden a fuel producing facility by placing it on an existing papermill site is beyond me. The successful ventures left standing when this development is over will be high volume, highly efficient facilities built on greenfield sites. Competition will demand it by punishing those that don’t take this path, for they will not be able to achieve the operating margins of purpose-built processes.
As usual, we are in for exciting times, particularly in the communications paper segments. I have been in this industry for a long time now; I have never known it to be dull and boring.