The graphic paper industry, like many others, has encountered significant turbulence in recent years. Greg Lovensheimer, chief operating officer of Millcraft, shared essential insight during the Q3 2023 State of the Graphic Paper Industry Update webinar.

Lovensheimer covered critical areas, providing a comprehensive industry overview:

1. Changes Since Last Industry Update: 
The Q2 presentation discussed concerns like inventory burn, inflation, interest rates, supply chain disruptions and labor issues, with hopes of normalization in the latter part of the year.

2. Inventory Management: 
The industry saw a focus on inventory rightsizing, with printers actively making adjustments to align with expected corrections.

3. Industry Insights: 
Observations included varying sector growth, cautious approaches to direct mail due to postal rate increases, reduced manufacturing backlog and potential growth in financial printing due to Securities and Exchange Commission (SEC) rule changes in 2024.

4. Macro Level Forces:
Lovensheimer shared macroeconomic factors, including gross domestic product (GDP), inflation, government spending, manufacturing contraction, interest rates, labor trends and return-to-office dynamics. These forces will affect the graphic paper industry, including shifts in demand, postal rates, labor challenges and transportation costs.

5. Supply Chain and Freight:
Challenges such as the West Coast port strike and container costs were discussed, along with concerns about private carriers leaving the industry despite some domestic freight stabilization.

6. Industry Descriptors: 
Poll responses from the audience described the industry as “unpredictable,” “expensive” and “slow,” painting a vivid picture of its complex nature.

7. Factors Impacting Demand:
Poll results also explored factors negatively impacting demand, such as inventory management, interest rates, economic influences on manufacturing, recessionary fears and unspecified other factors.

Key Industry Data:

1. Graphic Paper Demand:
Demand for uncoated freesheet paper in 2019 was 7.7 million tons, dropping to 6.3 million tons in 2020 due to the pandemic, and currently standing at approximately 5.5 million tons, with capacity at 6.8 million tons. Coated paper demand fell from 3.4 million tons to 1.5 million tons.

2. Impact on Fiber Recycling:
The pandemic caused a 20% reduction in printer-generated fiber in the Northeast due to decreased printing activity.

3. Inventory Levels:
Despite declining demand, inventory levels remain manageable for uncoated freesheet and coated freesheet paper. Both are below pre-COVID levels.

4. Operating Rates:
Uncoated freesheet operated at 77% capacity, while coated freesheet and coated mechanical operated at 65%, reflecting reduced production due to low demand.

5. Supplier Earnings:
Some suppliers have maintained profitability, achieving Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margins of 8% despite challenging market conditions.

6. Imports:
Imports of uncoated freesheet were down by 45%, and imports of coated freesheet had plummeted by 50% compared to previous years — even lower than during the height of the COVID-19 pandemic.

Predictions and Challenges:

Lovensheimer expressed cautious optimism for 2024, citing factors like postal rate promotions, SEC shareholder reporting changes, a resurgence in print marketing by consumer brands and significant events — such as the presidential election — as potential growth drivers. However, uncertainties related to China's economic recovery, the war in Ukraine, recession fears and interest rate hikes remain.

Recommendations:

To navigate these challenges successfully, Lovensheimer offered several recommendations:

1. Build robust supply chain partnerships.
2. Stay informed about industry developments and share information.
3. Keep an eye on industry changes and trends.
4. Utilize supplier expertise and support.

The graphic paper industry faces substantial challenges, including oversupply, reduced demand and various external factors. While there's optimism for growth in 2024, uncertainties persist. Partnering with suppliers and maintaining transparency in supply chain operations are essential strategies for success in this dynamic landscape.

By Rachel Schollmeier