Where are paper prices heading

Paper used to be a major consideration in print all along. The importance increased considerably in recent years, however. Not only did the printing industry experience supply shortages, also the prices increased drastically. This has a major impact on what media executives are ordering – specifically print or an electronic alternative. These shifts are usually not done on short notice, rather they need to filter through a marketing or corporate strategy. Accordingly, it is important to see where are paper prices heading in the mid term to gauge the impact.

Paper prices and availability do differ by grade, however, for a general outlook it can be better to have a look at general statistics, like the production price index published by the German statistical office. The most recent data shows the production price index up to June 2023. As an index, the data is based on the production costs in the year 2015. Paper production costs remained essentially flat until 2020. A small rise in 2018 and 2019 was wiped out during the early years of the pandemic. February 2021 marked a low point with an index value of 98.6, essentially indicating that production costs were lower than 6 years before. The cost basis changed drastically with the index reaching a high of 183 in October 2022. After hovering at a very high level for a shirt while, costs declined, dropping to an index value of 157.6 in June 2023.

Where are paper prices heading
Paper production price index in Germany

Costs for corrugated had a similar trend, although rising not as dynamically as paper costs. Also, corrugated costs tailed off in 2023, although to a smaller extent.

Paper production prices are driven mainly by the cost of energy and of pulp. Energy prices went through the roof in Europe after Russia started their war against Ukraine. Energy prices have come down somewhat since, but remain high. Also, pulp prices increased as wood is in high demand for a number of activities, from packaging to sustainable buildings, to using wood as a source of energy. This shortage is not going to change as wood is increasingly being seen as an environmentally preferable option.

The high paper prices do have an effect on the printed volumes. Publishers are shifting towards electronic channels. Advertisers move to digital media, especially mobile devices to avoid rising print costs – even if environmental considerations are often cited as a reason for the switch.

Lower paper prices will help to avoid losing more print volume. Although the underlying cost factors remain unfavourable, there should be some more potential for cost declines. However, paper prices will remain noticeably higher than five years before.

In this respect, it is good news that the German state of Nordrhein-Westfalen is funding a joint research project among paper producers, suppliers, and researchers. It is also encouraging that paper production is seen as a core industrial activity, worth funding research for. The aim is to save 80% of the energy demand in paper production by 2045.

This will not help printing companies in the short term, however. It will be critical to monitor the production price index to have an indicator on where are paper prices could be heading and to position print as a future-proof media channel.

Printed flyers remain contested topic

The future of the printed flyer remains a contested topic – definitely in Germany but I am sure in other places as well. Some high-profile retailers recently ditched their printed flyers and supplements, or announced plans to do so. The claim is to be more environmentally friendly and better serve the changing interest of their customers. Proof is missing for both claims. At least on customers usage and preferences some new market research has been completed by the German research institute IFH. The first part has just been published.

Inkjet press placements picking up

2022 started fairly well in terms of inkjet press activities. It was supposed to be a decent year after the pandemic weighed down on businesses in 2020 and 2021. However, sales/placement announcements dropped off in Q2 and Q3. Finally, Q4 2022 sees inkjet press placements picking up finally. It ties in with printing companies having a more positive outlook again, e.g. in Germany.

For years I keep on collecting sales and placement announcements for production inkjet devices and use those to analyse trends and data. Placements and sales numbers for 2022 show a good start into the year with a decisive drop in activity in Q2 and Q3. However, Q4 showed a significant rise in numbers, easily surpassing even Q1 2022. Keep in mind that Q4 has not even ended, so there might be a few more units to add.

Small publishers and traditional media benefitting in 2022

2022 has not been the year many hoped for in the beginning. War in the Ukraine, supply chain issues, and energy price rises did throw a spanner into many plans. The ad market is surely no exception and the high growth expected had to be downgraded in the year-end reviews coming out now. There were some notable exceptions however as small publishers and traditional media were benefitting in the 2022 ad market climate.

Magna, the central planning unit of global advertising behemoth IPG Mediabrands published its year-end outlook a few days ago. It had some surprising findings. According to Magna’s analysis, the top 15 media suppliers’ share of the global ad marketplace actually contracted two percentage points in 2022 to 58% (and this is not just down to Elon Musk wrecking Twitter). Both, the share for the 3 largest advertising media channels as well as the share of the following 12 largest providers declined, although it does not show all in the chart due to rounding. In any case, it is remarkable as it is the first time that the concentration in the ad market paused!