Supply and Demand are Causing Uncertainty
The once relatively stable paper market, is no more. This is due in large part to two unrelated, yet significant factors, that are disrupting the paper market worldwide.
Direct Thermal Paper Shortage
An interruption in the production of thermal paper is causing worldwide concern. Connect Chemical, the world’s largest supplier of Leuco Dye, is shutting down their plant in China due to environmental concerns. The plant supplies approximately 50% of the worldwide supply of Leuco Dye, an activation ingredient used in the making of thermal paper. The shutdown will significantly limit the supply of thermal paper for the foreseeable future, resulting in potential material allocation and inevitable price increases on direct thermal label stocks and receipt paper.
The Rising Cost of Paper
In 2011, pulp and paper prices hit a 30-year high. Since then, the paper market has continued its upward trend and four short years later, pulp and paper prices were at record highs again. According to IBISWorld, this inflationary trend will continue. They are forecasting “the price of wood pulp to rise even further at an annualized rate of 5.1% in the two years to 2019”.
Surprisingly, three positive economic indicators are contributing to the rising cost of paper:
- Stable unemployment and increased confidence in the economy is leading to a rise in consumer spending. This growth in demand for discretionary and non-discretionary goods are often packaged with paper-based product, contributing to an increase in demand.
- Related to the rise in consumer spending, is the growth of e-commerce. This trend was validated by the estimated $6.6 billion spent this year on Cyber Monday and likely those on-line purchases were packaged and shipped using paper-based products.
- Growth in industrial production, by both existing and new businesses, is driving demand up for paper-based packaging products used in the production and wide-spread distribution of these products.
ADI is working closely with our paper coaters and convertors to maintain label pricing levels and will raise pricing only when it is absolutely necessary.