How to deal with astronomical paper prices

The first sign was still harmless: a brief notice—primarily from the major Swiss newspaper publishers—to their print subscribers that the size of daily newspapers would be reduced in the near future due to a paper shortage. But at newspaper printing facilities, managers were already alarmed by the sharp rise in paper prices; publishers have been under intense pressure to cut costs due to declining advertising revenue and falling subscription numbers, and many titles—especially smaller ones—can hardly absorb higher production costs.

The business press offers an initial explanation for why these price increases occurred. For example, the Zurich-based Finance and economy: Recycled paper has suddenly become in high demand and expensive. And anyone familiar with newspaper production knows that recycled paper is an important component of new newsprint. There is still one paper mill in Switzerland that produces newsprint: the company in Perlen, just outside Lucerne, which is part of the CPH Group. The Lucerne Newspaper It therefore reported in greater detail on the problems in the paper market, highlighting in particular the fact that paper consumption fell sharply due to the pandemic, which had a negative impact on paper prices. But now, demand for newsprint and magazine paper is rising sharply again, and because there is a shortage of recycled paper, paper prices are skyrocketing. Let’s take a closer look at this trend.

Newspaper printers are getting nervous

Andreas Schaffner, co-managing director of Tamedia—Switzerland’s largest media company—has been closely monitoring this trend for some time now. The country’s leading newspaper printer first examined how paper consumption has evolved in recent years and how production capacities have changed in parallel. It turns out that these trends follow very similar patterns. Because this trend must be causing him some concern, he continued his research by investigating where there are still paper machines in operation today that produce newsprint. According to Schaffner, there are now only 23 such machines left in Western Europe. Since the investment required for such a facility is very high—the Tamedia CEO cites a figure of around 500 million Swiss francs or euros for a useful life of about 50 years—paper mills are considering what else they could produce with them. According to Schaffner, a paper mill could, for example, convert one of these machines for cardboard production, which would entail conversion costs of around 100 million Swiss francs or euros. This is because the cardboard market is growing by 3 to 4 percent annually due to the sharp rise in online retail, a consequence of the COVID-19 pandemic. Since there is now a shortage of paper machines that supply the material for newspaper printing, the price of paper is rising significantly, and production costs are rising as a result. This is an unpleasant situation for print media, whose advertising revenues are known to be declining and whose subscription revenues continue to fall.

What's next?

Prices are therefore rising sharply—an impression that is particularly strong when one considers that they had previously hit a historic low, as the Tamedia co-CEO goes on to note. Never before has newsprint been so cheap. And now we’re seeing this surge in prices, driven by demand that—as always after a lull during crises—is once again very high and is driving up the utilization rates of paper machines. That’s why Andreas Schaffner’s primary concern today is this: Will paper prices remain this high?

«Will paper prices stay this high? The answer is yes, if material and energy costs remain high.»

His answer is largely “yes,” provided that material and energy costs remain high. This seems unlikely, at least as far as waste paper is concerned. With newsprint prices currently so high, paper machine utilization rates will decline again due to falling demand, and this will also affect supply and, consequently, the price of paper. However, we must accept greater volatility in paper prices—meaning that price adjustments will occur more frequently, roughly every quarter instead of every semester or year as has been the case so far—concludes Switzerland’s leading newspaper printer.

Waste paper as the deciding factor

There are various factors that influence the price of paper, and all of them need to be kept in mind, says Co-Managing Director Schaffner, but one price factor deserves special attention: waste paper. At 40 percent of total costs, it accounts for the largest share of production costs. Given current trends, recycled paper is also the biggest driver. According to the Tamedia CEO, there are three reasons for this: first, paper consumption, which fell by about 20 percent during the COVID-19 pandemic, leading to a sharp decline in the volume of recycled paper; second, the collection rate during the pandemic; and third, cardboard production, which fueled demand for recycled paper.

Another factor that has become more noticeable this year is the rise in energy costs; gas and electricity prices have risen sharply—as has been repeatedly reported in the press—and are now also having a negative impact on paper production. In addition, transportation is becoming more expensive, though this accounts for the smallest portion of production costs. Since recycled paper and energy make up about 60 percent of total production costs, we must therefore closely monitor their trends, concludes Andreas Schaffner.

Packaging is getting more expensive

Packaging printing is one of the most important sectors in the graphic arts industry. Andreas Zopfi, managing director of the Swiss Packaging Institute (SVI), identifies the factors leading to shortages in this market. These include production constraints in China, which are currently limiting the availability of the alloying elements silicon (Si) and magnesium (Mg) in Europe. In addition, since the beginning of the year, there have also been significant shortages of materials such as wood, cardboard, and chemicals, as well as constraints on energy and freight.