North American copy paper trends at home vs. the office – less paper, but far from paperless

CHARLOTTESVILLE, VG, Mai. 18, 2010 (RISI) - When I first started forecasting copy paper markets more than 30 years ago, it was the easiest thing in the world to predict. The market would grow 5% every year, maybe a little more when the economy was booming, maybe a tad less during a recession. Offshore imports were virtually nonexistent, and there were even tariffs in place to prevent much trade between the USA and Canada. Producers would pull out a yardstick and slap it alongside the historical trend of demand, and draw a line to a point in the future where more capacity would be needed, and proceed with plans to expand.

Flash forward to 2010 and no one can tell you with any reasonable degree of certainty exactly how the market for copy papers will play out over the coming years. In fact, it is not really just copy paper anymore, with so many ink-jet, laser, high-speed, sheet-fed digital printers and other printing devices replacing xerographic copy machines. Demand is now generally believed to be falling on a long-term basis at some unknown rate of decline. Supply is being cut preemptively by the limited number of producers now making copy paper in North America in an attempt to preserve profitability in a declining market. And finally, wild swings in exchange rates and excess capacity in offshore markets add another degree of supply uncertainty to the market. Offshore imports feed about 6% of North American cut-size copy paper demand and these imports may be rising in the future despite falling US demand.

The demand trend slowed dramatically in 2000, and reached what we believe will be the all-time historical peak in the market of just under 6.0 million tons during 2004-2006. The market began to slide slowly off the edge in 2007-2008, and then took a headfirst plunge off the cliff in 2009. The market stood at just under 5.0 million tons in 2009 in North America, but there are disturbing signs that the slide is continuing in 2010. The AF&PA reported that for the first quarter of 2010, US shipments of bond & writing paper (i.e., cut-size) were down 3.8%, while shipments of all other grades of uncoated freesheet gained 8% against year-ago levels.

In order to analyze these movements and try to come up with projections for the future, it is important to segment the trends into "office" vs. "SOHO" channels. SOHO is a common acronym for the small-office-home-office channel. We can arrive at estimates of the SOHO market for copy paper by following the distribution chain. Office superstores are dominated by Staples, Office Depot and OfficeMax, who have sales segments broken down into "Delivery" vs. "Retail." Most of the "Retail" in-store distribution is going to be going to the SOHO market. These stores distributed about 1.4 million tons of "copy" paper in 2008 (latest data), and 53% was sold in-store "Retail." Thus, we can estimate that about 750,000 tons of copy paper used by the SOHO market is sold through office superstores.

John Maine, RISI Vice President for World Graphic Papers, author of the monthly Paper Trader, works out of RISI's Charlottesville, VA, office.

Tel: 434 978 2927 Email: jmaine@risi.com