Hardly has the storm caused by the increase in paper prices in October and November 2005 blown over, another wave of price increase is to be expected.
It is not only the corrugated cardboard manufacturers that are raking their brains for a solution to incorporate a 50 euro/ton price increase for recycled papers in the price of the end product (corrugated fibre board boxes), since this would mean a 15-20% increase in the price of all paper products.
Just like this time, the increase in prices last year was also brought about by increasing production costs. Energy costs make up 25-30% of the prime costs. The price of gas and power has increased by 50-130% in the past two years, with rising oil prices causing an increase in freight costs as well.
Even the technologically most advanced paper plants have generated operational losses. No wonder that minor manufacturers who are left behind have discontinued production.
In the first half of 2005, market supply was slightly greater than the demand, pushing down prices. The equilibrium ensuing as a result of the economic boom presents a golden opportunity for the paper industry to push through the 50 EUR/ton price increase for deliveries to be made in March and April.
The publications of VDW, the Association of German Corrugated Board Manufacturers, contain the historic cost figures supplied by the major corrugated board manufacturers. This is an official reference, generally accepted in the trade, which functions as a kind of “business barometer”. In the first days of 2006, it has already forecasted an actual, accepted price increase of 23-31 EUR/ton. This price increase is expected to be revealed in the official German EUWID registries by the second week of March.
The paper industry is unified in its attempt to push through the 50 EUR /ton price increase by April the latest, both for recycled and kraft papers. Although this increase may only be implemented in two stages, manufacturers are not willing to bear the burden of increased costs any longer.
Analysts point out that these price increases, however painful, are necessary – notwithstanding the fact that paper waste prices showed no significant increase – which proved on many occasions a major drive behind transferring costs in the past. The known Asian factor, that is, China and India shipping a great amount of paper waste out of the European harbours, did not even play a role this time.
Due to the boom in the US economy, the influence of competitive US paper manufacturers has dwindled in the European market, making it easier for the rest of the manufacturers to increase prices.
Of course the rate of price increase will differ from country to country and region to region. The greatest price increase is expected to occur in the traditionally inexpensive Italian market, with signs already showing. White papers have become less expensive than brown papers, as their prices underwent more moderate decrease in the first half of last year.
However, no one could predict how long paper prices remain stable, as oil prices reflect every event in the world market, and world political events may well affect the price of any mass product whose production costs significantly involve energy prices.
Therefore, even after the price increase is over, the calm may not last for long.
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