The wood from the trees

Paper pricing is always of interest to book publishers as it represents 40–45% of the production cost of books, but printers and publishers have very little if any control over its cost.

Papermaking requires huge investment, with long lead times, and is heavily consolidated within huge multinational manufacturers who cater to diverse markets of which book publishing represents a surprisingly small proportion. The price of paper is driven largely by fluctuations in supply and demand across international markets and the many, often unrelated industries that depend on it: packaging, books, magazines, stationery, advertising, tissues etc. Yet in turn, the cost of paper depends on the price of its own commodity and raw material: wood pulp. Historically, both pulp and paper prices have fluctuated widely (though not always synchronously), as investment in forestry and new processing capacity has come on stream, or demand from newer economies such as China and India has developed and grown (or stalled), alongside various political and environmental considerations.

We currently seem to be at a high point, with paper prices having increased by 10–25% in the past 18 months (depending on which product, and who you talk to) and pulp prices up by an average of 20%. The general view is that the upward pricing has not yet stabilised and has somewhat further to go but, based on precedent, it will fall again. When and by how much is difficult to predict, though it would seem unlikely before 2019.

Eastern promises
I think there are some specific reasons why prices have risen this time. For the UK, Brexit is surely a factor, as paper and pulp are priced in dollars, and sterling has fallen. More significant, though, is what has been happening in China recently. Most colour illustrated books for the UK market, and many international markets, are printed in China and, over the years we have got used to using Chinese-made papers for all kinds of books, even when printing elsewhere. Though of high quality, these have generally been priced below international paper price levels owing to the heavy investment in new paper production facilities in China over the past 10–15 years, resulting in an excess of production capacity and an aggressive drive in selling and marketing their papers, both in China and internationally, and even to book printers in Europe and beyond.

However, the Chinese government—under increasing domestic and international pressure to reduce pollution and environmental damage—has introduced two major policy changes in recent years. First, it has forced the closure of many of the older, smaller, "dirtier" paper mills in the country. This has substantially reduced paper supply in the domestic market (a market which itself has continued to grow quickly as the Chinese economy develops and living standards there have risen).

Second, China previously took in large quantities of waste products (including paper) from the Western world for recycling; but it has dramatically cut imports of these materials, which are often heavily polluted. This has caused a shortage of recycled pulp domestically, reducing local paper making output further or sometimes being replaced by virgin pulp which in turn also reduces supplies of recycled pulp. With output down and pulp supply under pressure on their domestic market, the main mills have increased their own prices to international levels and beyond, and have reduced their interest in exporting, thus cutting supplies elsewhere too. Interestingly, this has also had the effect of eliminating some of the price advantages that China’s exporting book printers have traditionally had, reducing profitability and making them less competitive against their rivals in Europe and elsewhere—a point that many publishers will have become aware of recently.

European perspective
At the same time, European paper mills have had their own difficulties adjusting to the decline in their market for "graphic papers". While the impact of e-books has been with us for some time, the decline of newspapers, magazines and paper-based advertising continues to be of concern, and has persuaded paper mills to cut output and convert a number of existing graphic papermaking machines to the more profitable production of packaging papers and boards, in order to supply the very active packaging industry, which continues to grow. (It now accounts for roughly 50% of all paper usage.) With the recent controversy in the UK over single-use plastics packaging, a continued increase in demand for paper packaging is surely to be expected.

The result for book publishers seems clear. Less book-papermaking capacity in Europe on the back of higher pulp prices, leading to longer order lead times and higher prices, compounded by similar, if partially unrelated problems with papers from China. And, in the highly internationally focused market of today, these issues feed through and impact papermaking and pricing everywhere. So, there may still be some difficult times ahead.