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.

Pulling out of the depression

The German Federation of the Printing Industry (BVDM) is publishing a monthly overview of the current state and business outlook of the printing industry. November 2022 survey data has just been published and it shows that the printing industry seems to be finally pulling out of the depression that started in early 2022.

The survey data covers the current situation, a short term and a long term outlook. Especially the long term outlook for the next six months (Geschäftserwartungen – grey line) showed a strong recovery. Also, the short term outlook (Geschäftsklima – red line) had a 6% upswing, indicating that conditions already start to improve. On the current business situation (Geschäftslage – blue line) remains almost unchanged. All indicators remain in the negative, however.

chart of German print industry outlook nov 2022
Business Situation and Outlook print Industry Germany

Time to ditch flyers?

In the media and advertising world in Germany the decisions of major supermarket chain Rewe and home improvement store chain Obi that it is time to ditch their flyers made headlines recently. Both are a staple in the post boxes or are distributed as inserts in newspapers or free magazines. Instead, both companies announced that they will be focussing on digital channels in the future.

Both companies cited as main arguments for ditching the flyer environmental concerns. This might be true, although none cared to make a calculation of the environmental impact of replacing print with digital media – nor mentioning that they considered making their print products more environmentally friendly.

The true reasons are likely cutting costs (possibly tied in with the high paper prices) and the belief that customers are better served by digital. It might as well be the perennial urge in retail/marketing to jump on the latest bandwagon.

The catch might be whether customers will follow. The Austrian Post made an interesting end user survey in 2019 on, among other factors, which advertising channels are consulted before making a purchase and which advertising channels are the most amiable (in lack of a better translation of the German word “sympatisch”). Displayed are selected results for the category of groceries.

Effectiveness of advertising
Purchase drive and Likeability of advertising

Flyers, or small catalogues, tick both boxes in being consulted most often and being the most amiable/likable/pleasant – by a wide margin. Digital channels rank much lower, especially on the likeability scale. This is certainly down to the more mundane nature of groceries as most people do not consult the web before buying a pack a bottle of milk. Both companies are not selling high-tech products, rather products of daily living. Flyers are still the easiest and best inspiration in this category, even for younger buyers.  It might be a premature time to ditch flyers.

European print production 2021 – Chart of the week

Starting into the new year is a good time to have a look at the European print production developments in 2021. For the full revenue data to trickle in we have to wait several months – even for the first countries to report. The full data on Eurostat might be even two years out as Eurostat just about managed to publish 2019 revenues now.

The next best thing is to look at the monthly production index data published by Eurostat. Data is now available until October 2021. The best fitting category in the database is “print and reproduction of media” – with print production making up the lions share in that category. The data is based on the average 2015 volumes as being 100 index points. Starting values in the 90s for 2019 shows that print production volumes already declined before the pandemic hit in early 2020.

Print production index data