Dear Colleagues,

As the budget season quickly approaches, we thought it would be helpful to compile useful data and present it in a straightforward manner.

The data is collected from reliable industry sources and is non-biased. Three Executive Summaries are available:

First, paper is the single greatest expense to a publisher. "The Impact of Paper Capacity & Consumption" shows you the trend in the paper industry.

Second, print providers must now offer more than just printed product. Read about the role of the Print Provider in 2007 and beyond in "The Era of the Communications Provider".

Finally, learn about the emerging PDF/X standard for graphics professionals in this 10 minute Executive Summary: "The PDF/X Standard".

Abstract

The overall economy is not growing as strongly as anticipated, however the growth should exceed 2.6% for the year 2006. Energy costs remain a concern due to the high energy needs in the paper industry and the printing industry.

Ad page sales are up and direct mailing also rose. There is an impact to be seen from print product imports and paper imports (Slide 2). The ad sales seem to be stronger in the magazine market than in the newspaper market.

There is a healthy increase in print advertising sales. There seems to be a shift from TV media to print/direct mail media (Slides 5 & 6).

There is much paper capacity on the market. The US market struggles with high labor and energy cost versus the off-shore suppliers. Slide 8, 11, 17 shows the impact of imported sheets on the US market. The installation of new paper making equipment is mostly present on a large scale in Asia, especially China.

In the US, we see shut-downs of some mills that are no longer efficient enough to compete in the global market.

This trend is visible on both paper qualities mostly used in Hawaii, freesheets and groundwood. Freesheets are mostly heavier paper from 50# and higher in weight and groundwoods are mostly thinner papers that have ground wood fibers added to achieve a better opacity that is lost when paper is thinner.

The bottom-line is that there is enough paper supply in the market. Allocation issues as we saw in the 90's should not be a problem in the coming year. The paper prices are controlled by the global market in which the Chinese have become major players. Therefore, if the Chinese can fulfill their domestic market and the government doesn't add any duties to protect the US market the prices should be stable for 2007. Our recommendation however is to build into your budget a 2% paper price increase in March 2007 and an additional 1% in October 2007. Paper price increases affect all print vendors, locally, on the mainland and Asia.

Erwin Hudelist
President, Hagadone Printing Company