Between October 2021 and January 2022, the market witnessed a strong growth in paper and paperboard prices. As a result, printing and typography costs have increased, and more generally the production of any printed material(from editorial products to packaging, from brochures to flyers) has increased.
The Chamber of Commerce of Milan, MonzaBrianza and Lodi - which monitors the prices of various types of paper and cardboard on a monthly basis through its “Più Prezzi" portal - has clearly noted these increases. Between September 2021 and November 2021 (latest data available on portal), LWC 60-gram coated paper alone, the kind used, for example, to produce magazines and journals, increased by about 25 percent. The same paper, then increased by an additional 25-30% between the end of November 2021 and January 2022 (data collected from the market). An increase of about 50% in less than 5 months! And the situation is the same for all other types of paper and cardboard.
Printing costs have consequently risen, in percentages ranging from 20% to 50%, depending on the type of printing and the incidence of the price of paper on the individual printed product. In addition to that, to date it is difficult to find the paper to print, and it is impossible to set the price. The major Italian printers are now accepting orders, but are unable to price them with a longer horizon than two or three weeks. This means ordering the paper and the printing service today, and only knowing the price a few days before printing. This dynamic also applies to old contracts that- as it is in the industry - are entered into with the expectation that prices may be revised in the event of increases in the wholesale price of paper.
The situation is unprecedented. It is so serious that several magazine publishers are reportedly wondering whether or not to continue printing their products, raise their prices, or reduce their print runs. More broadly, any company that needs paper products to support its business is experiencing unprecedented costs that put a strain on the 2021-2022 marketing budget. To date, old printing contracts are being ripped up, and it's impossible to draw up new ones with a guaranteed price.
To simplify a very complex topic, we can identify three main answers:
1. Increase in the cost of paper and cardstock, up about 50% in less than five months;
2. Increase in the cost of energy, with gas prices up over 400% in six months
3. Increase in the cost of other raw materials and industrial intermediate goods, such as aluminum (used in printing plates) and chemicals widely used in printing;
4. Increase in freight costs (the "ship passage" of a container from China and Southeast Asia to our ports) They have risen more than 300% in six months, increasing the cost of transporting raw materials from production sites to our industries.
There is no doubt, however, that the increase in the price of paper and the increase in energy costs are the main factors that are pushing up the costs of printing and printing services.
There are multiple causes. The main ones are:
1. Increase in the cost of energy. As we all know by now, between September 2021 and January 2022 the price of methane gas in Italy (but more generally in Europe) has undergone unprecedented increases. According to some observers, the price of gas has risen more than 400% over prices charged in the previous period, and continues to rise .The increases in the price of gas have in turn different matrices: the "restart" that has caused a significant increase in the demand for gas by the industrial sector; geopolitical tensions between Russia, Ukraine, the European Union and the United States, with gas becoming a lever of political pressure; and not least the green turn that is leading more and more countries to abandon other fossil fuels (such as coal) to shift their energy mix to gas, with a consequent increase in demand. The skyrocketing price of gas also leads to an increase in the cost of electricity, since a substantial portion of electricity is produced by gas-fired power plants. Paper mills, i.e. the industries that produce paper and cardboard, are "energy-intensive" companies, i.e. they consume a large amount of energy for their activities. Energy is therefore one of the main cost components of this supply chain and an increase in the price of energy causes also an increase in the cost of paper in a direct and (almost) proportional manner.
2. Increase in the demand for paper worldwide. The economic rebound we're experiencing after the first, tough, COVID-19 year has the world's demand for paper and paperboard soaring into 2021. In short, we could say that those who had to stop their productions (editorial, promotional, packaging, etc.) during 2020 and the first part of 2021 are trying to get back up to speed. They are doing so by increasing the demand for paper and cardboard. As we know, in a free market, the law of supply and demand governs the price. At this moment, market demand exceeds the production capacity of the paper industry, and as a result there is tension on the price, which goes up. Not only in Italy, but all over Europe.
3. Increased cost of raw material (pulp and recycled paper) worldwide. The pandemic has accelerated the 'digital revolution'. E-commerce has seen worldwide a boom in orders, with homebound people preferring online shopping over physical stores. More online purchases mean more shipments and therefore more consumption of corrugated cardboard for packaging and other packaging materials. It's an experience we all have, having our home or office overrun with boxes from Amazon or other online retailers. Corrugated board is made from recycled paper and cellulose. The boom in demand for corrugated packaging has therefore led to an increase in the cost of these raw materials, and the paper recycling industry is struggling to keep up with demand. Once again, this leads to higher prices that are reflected in the final product.
4. Tensions in the labor market. In Europe, some of the largest paper mills are located in Scandinavian countries and Germany. In these months (December 2021 and January 2022), there have been several labor market tensions in the industry, with labor unrest involving some of the major paper manufacturers. Production slowdowns and delayed delivery of orders came as a result.
Several industry players (printers and paper mills) we interviewed believe that the price of paper, and consequently that of printing services, will fall. This will only happen when the price of energy has returned to normal. When this will happen, no one can say for sure. Some observers argue that starting in March/April 2022, as winter draws to a close and demand for heating gas declines, the cost of energy should fall. The industrial sector should therefore see production costs fall, and adjust prices accordingly. Even if this were true, it would still take a few months to see prices return to the levels we were used to. In fact, it should not be forgotten that the production system has a certain structural rigidity: it will take time to dispose of the paper ordered, produced and stored when production prices were higher.
The conditional is a must. These are in fact only hypotheses, and nobody has a crystal ball. The cost of energy depends on geopolitical factors that go beyond the sector. What is certain is that all economic sectors are asking for a political (in the short term) and structural (in the medium-long term) solution to an unsustainable situation, that sees industry hostage to the whims of the energy market.
YAK Agency is trying to assist its clients in mitigating the impact of rising printing costs. Although we cannot promise miracles, thanks to our long-standing relationships with various printers – to whom we can guarantee sustained printing volumes over time – we are able to obtain the best prices on the market. If these are still unsustainable, we can propose to our Customers alternative digital solutions for editorial and promotional products, in order to achieve marketing objectives within the budget.
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