Selective Cuttings

The future of graphic paper (Graphic paper #4)

August 26, 2014

Since 2000, year-over-year demand has declined for newsprint by ~7.5% per year, and for other graphic paper grades by ~2.5-4.0% per year. Private sector analysts expect these sorts of averages to continue, in percent terms, for at least the medium term. Despite these high rates of annual decline, this implies a lower absolute decline on an annual basis, which is likely to mean less emphasis by producers on mill closures, and more on other forms of supply management, such as paper machine conversions, and longer and more regular periods of seasonal downtime at less competitive mills. Consolidation within the sector is also highly likely, and is indeed already well established, such as the Abitibi and Bowater merger in the newsprint sector (eventually creating Resolute Forest Products) and Verso’s on-going attempt to acquire NewPage (in the coated papers sector).

North American graphic paper demand since 2000

This line chart shows demand for various graphic paper grades and their decline since the year 2000.

 

Historic analogies to similar sectors are difficult to establish, insofar as it is rare in recent history for disruptive technology developments to come from completely outside an established industry. The impact of portable media devices on the music industry may be most analogous: in both cases a disruptive technology has overthrown the business model of a well-established communications sector. The key difference, however, is that the music sector regularly radically shifts its communications technologies, from phonographs to radio to vinyl to 8-tracks to cassettes to compact discs to mp3s, etc. The music industry has long been relatively agnostic about their means of transmitting music, and has focused their business model on extracting rents through controlling their rights to access and distribute music content. As such, the traditional music sector has had many opportunities to respond to the emergence of portable media devices on these grounds, and has to a certain extent remained viable. The traditional print sector has (like the traditional music sector) largely capitulated to the new technology, and has pursued various means to leverage new revenue streams through controlling access to content (such as online newspaper pay-per-use systems, e-books, etc).

In the case of out-of-date music technologies, the experience of the 8-track may offer some guidance. The device popularly known as the “8-track” refers to a technology more accurately called “Stereo 8” that was produced and marketed through a partnership between Lear Jet, Ford, GM, Motorola and RCA Records. It was never more than a fringe revenue source for the consortium that marketed it, and could hardly have been more than an afterthought for these firms when it was outcompeted in the market by cassettes – which were in many cases produced and promoted by the same firms that produced the Stereo 8! This suggests that a means by which to continue the use of forest fibre traditionally used to produce paper may be to promote deeper integration of the forest sector into international manufacturing conglomerates – who would have a higher incentive to ensure a profitable use for forest fibre itself (rather than simply paper), while also having more resources to do so, if they had a significant volume of capital sunk in ownership of the resource, rather than being able to relatively painlessly (for them) shift consumer products away from being forest fibre based.

Regardless, it is certainly the case that firms are looking to invest in new transformative technologies that will use fibre orphaned by the closure of graphic paper mills. In this way, declining demand for graphic papers should not necessarily be thought of as the “death” of an industry, but rather its transformation into something new. Forests whose fibre once produced graphic papers are now beginning to be used to produce fuels, plastics and textiles. One can confidently expect that these changes will continue into products and economic activities that are difficult at this point to anticipate.