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  • Paper falls flatten out but conditions are still tough – Tim Woods Pulp & Paper Edge

    After big declines in the consumption of  printing paper  in each of the previous two years, the market eased back towards stability in 2013-14, falling just 0.5%. Total consumption of printing papers (excluding newsprint) was 1.2 Mt, (million tonnes) down from its peak in 2007-08 of more than 1.5 Mt.

    Despite the apparent respite from long-term industry contraction, few in the printing industry would consider conditions are any better than a year ago. The latest data and intelligence, which is summarized here from IndustryEdge’s annual Pulp & Paper Strategic Review*, helps understand the state of the industry.

    Demand side pressures remain strong

    While the stability of the total consumption figure came as a surprise, other major consumption indicators followed trends and met expectations. For instance, domestically produced paper accounted for just 18.8% of total consumption, continuing a long-term trend.

    Additionally, as Figure 1 shows, consumption of the four major grades of printing papers has varied over the last decade.

    Fig. 1: Australian Apparent Consumption of Printing & Communication Papers by Grade: 2004 – 2014


    Source: ABS & IndustryEdge research and estimates

    Only coated mechanical (CM) papers, for catalogues, brochures and inserts experienced increased consumption over the last decade, having grown at 3.4% per annum over the last decade. The other grades are all in decline, as the table below shows.

    Fig. 2: Printing and Communication Paper Consumption by Main Grade: 2004 and 2014 (‘000t & %)

    Main Grade and End Use

    Consumption Volume (‘000t)

    % Change Per Annum

    2003-04 2013-14
    Coated Mechanical (CM) eg. catalogues

    267.1

    374.1

    3.4

    Uncoated Mechanical (UCM) eg. directories

    240.6

    199.2

    -1.9

    Coated Woodfree (CWF) eg. commercial printing

    400.3

    287.4

    -3.3

    Uncoated Woodfree (UCWF) eg. copy paper

    467.0

    348.4

    -2.9

    Source: ABS & IndustryEdge research and estimates

    Advertising remains the major driver

    Although there are other drivers for changes in consumption of printing papers, the major driver remains advertising expenditure. As Figure 3 shows, advertising in the main print media is now dominated by still growing digital communications.

    Fig. 3: Long Term Advertising Expenditure in the Main Media in Australia: 2003 – 2013 (AUDM)

    Source:

    Just a decade ago, advertising in printed media totaled $6.9 billion and accounted for almost 62% of total advertising expenditure. However, last financial year, total printed media advertising fell to $5.2 billion and accounted for only 35% of the total of all media advertising.

    Clearly expenditure on print advertising is in decline, but even so, opportunities remain. For example, total expenditure on catalogue and brochure advertising is estimated to be the same ($1.7 billion) in 2014, as it was in 2004.

    Local printers keep imports at bay

    By contrast, the value of imported printed material has been largely consistent over the last decade. As the index in Figure 4 shows, to the end of June 2014, Australia’s gross domestic product grew approximately 45%, while the value of imports of printed material grew just 3.8%.

     

    Fig. 4: Printed Material Imports vs GDP: 2004 – 2014 Index (Base: 2004 = 100)

    Source: ABS & Long Term Forecasts Australia, 2014 – 2029 & IndustryEdge estimates

    For the first six years of the decade, local printers appear to have invested heavily. As the data suggests, they been very successful in reducing the amount of Australian work printed offshore. Between 2005-06 and 2008-09, somewhat ominously, the value of work printed overseas rose again, paralleling the growth in the economy. In 2008-09 it grew faster than the economy.

    Overall, Australia’s printers have performed well, keeping imported material at bay, especially in the latter half of the decade.

    Part of the slide in the value of imported printed material is attributable to the strong exchange rate of the Australia dollar. The price of imported material fell in Australian dollar terms through to the last financial year when it depreciated in a healthy and not unexpected manner.

    The unfortunate reality, as IndustryEdge analysis in the latest edition of the Pulp & Paper Strategic Review demonstrates, is that position has been achieved by almost continuous cost competition. This has extended to paper prices, which have crashed across the board, especially since 2009. This is plain to see in Figure 5.

     

    Fig 5.: Australian Comparison of Real Paper Prices of the Main Printing & Communication Grades: MQ’04 – MQ’14: Index (Base: MQ’04 = 100)

    Source: RBA, ABS & IndustryEdge estimates and research

    In real terms, compared with Australia’s gross domestic product, import prices for all grades of printing and communication papers have never been lower than the last two years.

    Prices have fallen by between 44% (uncoated woodfrees) and 53% (light-weight coated mechanicals) over the past decade alone. The greatest decline in the real price has been for coated papers, even though they are the more expensive to manufacture and involve greater value adding.

    Demonstrating the pressures the entire sector has labored under in recent years, average paper prices increased only marginally in the last financial year, despite the almost 10% depreciation of the Australian dollar.

    New opportunities and revised business models

    Despite the circumstances facing print on paper, opportunities remain and in some cases are strong. Latest analysis suggests the top picks are:

    • Further development of catalogues and brochures
    • Directly targeted, personally mailed advertising items
    • High recycled content office papers and general printing
    • Increased direct supplies to end-users, where the supplier’s value proposition is strong enough
    • Capacity rationalisations that improve industry valuations and other forms of vertical integration

    A crisis for one business is an opportunity for the next. There are sufficient opportunities and for the businesses with the right data and information, the likelihood of success is higher.

    IndustryEdge is Australia’s only market research and trade analysis and consulting firm dedicated to the paper, paperboard, pulp and recovered paper sectors. Every month, through Pulp & Paper Edge, IndustryEdge provides subscribers with the pulse of markets, including latest pricing.

    *Each year, IndustryEdge produces the annual Pulp & Paper Strategic Review. The 2014 edition is available now and is the 23rd consecutive annual edition.

    Contact Tim Woods

    +61 3 5229 2470

    +61 419 352 869

    tim@industryedge.com.au