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Price hikes strangle the entire paper chain - Business

Price hikes strangle the entire paper chain – Business

The industry was migrating from the manufacture of graphic papers to that of cardboard, when the Covid-19 crisis jostled consumer demand. Impossible to turn around, especially when energy bills are multiplied by 15!

Two small letters that arrived on February 14 and March 7 informed Benoît Willems, boss of Excelle Print (Stavelot), of the new paper supply conditions for his printing works: two successive increases of 15%, on average, with leaps up to 30% for certain paper weights. “And it’s been like that since September, specifies Benoît Willems. Before, we blocked our orders, and the prices, for the whole year. Now, our vision is limited at best to 15 days. The effective price of the paper, we only know it on delivery, as with fuel oil.”

Two small letters that arrived on February 14 and March 7 informed Benoît Willems, boss of Excelle Print (Stavelot), of the new paper supply conditions for his printing works: two successive increases of 15%, on average, with leaps up to 30% for certain paper weights. “And it’s been like that since September, specifies Benoît Willems. Before, we blocked our orders, and the prices, for the whole year. Now, our vision is limited at best to 15 days. The effective price of the paper, we only know it on delivery, as with fuel oil.” However, not all increases can be passed on to selling prices, so much so that Excelle Print lost 150,000 euros in the last month of December alone. “On an annual turnover of 10 million euros, it is a very significant impact”, adds our interlocutor. The spreading of certain credits and a “massive” recourse to temporary unemployment, by operating with a single team instead of three (the printing works employs 45 people), made it possible not to jeopardize the viability of the company in waiting for better days. The largest structures often have longer-term contracts, which secure prices. But these contracts have an end… “We didn’t really have an impact in 2021 but, since the beginning of this year, new contracts have come into force with price increases of 60 to 100%, depending on the categories of paper, says Xavier Bouckaert, CEO of the Roularta group (Trends-Tendances, Le Vif, Femmes d’actualité, etc.). It is impossible to pass on such sudden and strong increases in our selling prices. will therefore have an impact on our 2022 results. Who could have thought that in this year 2022, the first challenge for a group like ours would not be digitalization but paper? A challenge all the greater since Roularta’s main supplier – the Finnish group UPM, world leader in the production of graphic paper – has been on strike since 1 January. All this does not tell us where this brutal explosion in the cost of paper is coming from. It stems from the meeting of structural and cyclical forces hitting the sector in opposite directions. Structurally, the paper industry adapted its production tools to the slow erosion of demand for paper. This has generated a strong concentration of the production of the most common papers, mainly in Scandinavian and Canadian companies, alongside small independent units for the manufacture of specific, even luxurious papers. The drop in demand was mainly for graphic paper. On the contrary, there was an increase in demand for cardboard and wrapping paper, linked in particular to the development of e-commerce and the ban in our countries on the use of plastic bags. The industry therefore replaced part of its graphic paper manufacturing machines with machines for packaging paper and/or cardboard. Over the last five years, the production capacity of graphic papers in Europe has decreased by 25%, assures the European federation Intergraf. Until then, we have a classic economic evolution, with these clashes here and there, but perfectly manageable. The Covid-19 has shaken things up. During periods of confinement, book sales increased sharply, especially for us for manga, comics and children’s literature. It was therefore urgent to get back to producing more graphic paper, all the more so as the market picked up with particular vigor in China, a country which is absolutely not a paper producer. Problem: the necessary machines had just been replaced by others, dedicated to the production of cardboard and wrapping paper. It is technically impossible to convert the equipment from one assignment to another and, in any case, we are talking about gigantic infrastructures which cost around 400 million euros and which, in any case, are not being built in six months. Intergraf recently advocated for a halt to European paper and pulp exports, as well as for the consolidation of self-sustaining production capacity in the Union. That would already be enough to disrupt the entire market. But a second economic shock has accentuated the problem: in a few months, the average energy bill for companies in the sector has gone from 18 to… 250 euros/MWh, according to the inDUfed federation. “Some people stop producing because with energy at that price, they would lose more money by starting up their tool than by paying their fixed costs with machines stopped, explains Thomas Davreux, secretary general of inDUfed.Our factories have already invested heavily to reduce their energy consumption by 30%, thanks in particular to cogeneration.Today, 85% of the energy consumed already comes from paper mill waste.But we remain an energy-intensive activity. Despite our best efforts, energy accounted for 20% of the cost of making paper.” And this was a calculation with a kWh at 18 euros… In the short term, no one sees a solution. Producers are trying to cut costs and further improve the energy efficiency of their factories. “I have a whole team dedicated to the development of the circular economy and energy savings”, says Thomas Davreux, who recalls that the paper industry was the first to sign a branch agreement with the Walloon authorities with a view to reduce its greenhouse gas emissions. Publishers can cut back on the pagination or the number of copies to stay within their budgets. “Some of our customers are opting for lighter paper or reducing the number of pages, observes Xavier Bouckaert. For the time being, we have not yet experienced a problem with the supply of paper, that’s the good news in all this story. But it’s day-to-day work, we no longer have any long-term visibility. Fortunately, we are coming out of a very good year in 2021 and our cash flow allows us to cope. We will continue to invest in the future, especially in digitalization. This is essential to remain a robust company in the long term.” “We try to anticipate our orders as much as possible, adds printer Benoît Willems. This means clearly specifying the number, determining the month of production and ordering the paper at least three months in advance. we always manage to get by, sometimes even having to opt for other varieties of paper, with the customer’s agreement of course.” He puts forward a specific difficulty: calls for tenders for the printing of municipal bulletins and other official publications and which cover several years. Not easy to answer and then assume them, with prices so suddenly volatile. As if that weren’t enough, this printer is also worried about the possible scarcity of offset plates, produced from aluminum often coming from Ukraine… Benoît Willems nevertheless manages to remain relatively optimistic. “There is no strategic reason for this situation to continue, he concludes. At some point, perhaps in the last quarter of this year, things will stabilize and prices will return to a reasonable level, more probably higher than in January 2021 but lower than today.”

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