As publishers finalize budgets for 2012, paper is one of the biggest question marks. Publishers have benefitted from declining paper prices and (slightly) more stable advertising revenue over the past year, but will that last? If advertisers retreat again, publishers may need to make some hard decisions about their paper investment.

FOLIO: spoke with Rob Brai, partner and COO at Superior Media Solutions, about the four trends he sees dominating paper decisions going into 2012.  

1. Capacity Versus Demand
There is currently an overcapacity of paper versus demand from publishers and other businesses. In the third quarter of 2011, prices fell $2 to $4 per 100 basis weight, according to Brai. “Pricing is trending down and mills can’t cut out enough capacity to match the decline in demand,” he says.

2. Printers Managing the paper Buy
As publishers trim manufacturing and production staff, they’re farming out many responsibilities they used to handle in-house—such as paper buying—to printers. The advantage for publishers is that they don’t have to carry paper inventory and it helps cashflow. However, it does mean publishers are paying higher prices for paper—and if that rate is not attributed to the paper, then the price is going up somewhere else.

“Printers, if they also handle paper, can bury the higher prices elsewhere in a contract,” says Brai. “They could come in with low printer prices and charge higher margins on paper or vice versa. You have to be careful and you have to look at over-under consumption.”

3. Postal Rates Could Push paper Prices
Postage increases could have the biggest effect on paper demand and paper prices, especially for lighter weight grades. “If we see close to a double digital increase in postage, that could change a lot of buying decisions with paper,” says Brai. “Postage could make demand for lighter groundwoods very competitive.”

4. Contracts or Spot Market?
“Most people will factor in two paper price increases during the year,” says Brai. “If you can negotiate a fixed price for next year, great. Some vendors are willing to do that. Do you want to have competitive pricing and deal with a stable company or do you want to play the spot market? If you do, there’s some risk you might not have supply. It’s a publisher-to-publisher decision depending on the publisher’s financial standing.”

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Check out this related session at The Folio: Show, November 1-2 in NYC!

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