Top 6 Factors Affecting the Cost of Paper

In the last few years, there have been a combination of factors leading to increased overall costs for paper. With a combination of price hikes, increased demand and availability issues, and other related factors, the following dynamics are some of the influences responsible for the recent shift in the pulp and paper market.

Nov. 2018 

Increased Pulp Prices – According to the U.S. Bureau of Labor Statistics and the Producer Price Index (PPI) for Pulp, Paper, and Allied Products, the cost of pulp, the raw material of paper and corrugated boxes, has increased over 25% in the last 12 months due to increased operating costs, such as rising input costs and higher quality and environmental standards. An additional factor driving the current price increase is supply not being able to keep up with growing demand for paper-packaged products. As a result, these price increases have been passed down to buyers to help offset rising production costs.

 

Transportation Demands – With increased consumer spending and overall demand, there is a higher need to transport pulp and finished paper products nationwide, affecting related costs, such as fuel. According to IHS Markit, the price of diesel fuel rose 32% from 2017 to 2018, and freight capacity decreased, resulting in increased demand and less available means of transportation. As a result, transportation costs went even higher, with the cost affecting overall paper prices as well. Currently making matters worse is a lack of truck drivers to transport the loads and ELD (Electronic Logging Devices) compliance in effect, causing disruptions in the available freight and carriers of pulp and paper products.

 

Imposed Tariffs – According to reuters.com, trade disagreements have compounded the issue of rising paper costs. In early 2018, the U.S. imposed tariffs on Canada after a Washington-state paper mill filed a complaint alleging that subsidies the Canadian government provided to its manufacturers put American paper companies at a disadvantage. After a determination that "U.S. industry is not materially injured or threatened with material injury," (NY Times, 8/29/18) the tariffs were lifted in August; however, the impacts were felt across the U.S. newspaper industry. As part of its trade dispute with the U.S., Canada imposed tariffs on U.S. tissue, toilet paper and paper towel exports earlier this year, compounding the issue.

 

Closing Mills – Influenced by rising operational costs and decreased demand for certain types of paper, some major mills, such as Georgia-Pacific, have scaled back operations and reduced capacity, while others have gone out of business, resulting in a dramatic decrease in U.S. paper manufacturing capacity in a relatively short period of time. Additionally, other mills have re-focused their efforts on more profitable, higher-demand areas of paper, such as containerboard.

 

Decreased Supply – Increased paper demand in China, the world’s biggest and fastest-growing consumer of pulp, is one of the main reasons for decreased global supply. In 2016, pulp prices were at an all-time low due to China’s slowing economy. As its economy improved in 2017, there was an increased demand for pulp to meet China’s rising population, and the U.S. struggled to meet demand due to less capacity from its existing mills. (Fisher International, March 2018)

 

Shifting Exchange Rates – Fluctuations in currency have impacted the U.S. paper market and led to price hikes as demand has fallen in favor of lower-cost options. For example, according to Paper Age Market Grade Report, the Canadian dollar has decreased almost 25% from its peak in 2014, making Canadian mills a more competitive and in-demand option due to lower overall paper costs.

 

In conclusion, understanding all of the factors surrounding the paper industry demonstrates how even subtle market shifts can affect the supply and demand as well as overall costs worldwide. The above factors all play a role in the pulp and paper market, from determining the overall cost to product availability, and will continue to shape the industry for years to come.