This time last year all the buzz was about paper brightness.  Specifically how the mills were no longer going to produce 84 bright copy paper and instead make 92 bright the new standard.  They hadn’t changed brightness in 20 years and seemingly out of nowhere they made the change to 92 bright.  Well, not exactly “out of nowhere” seeing as how the international standard was already 92 bright.  One could argue that the change really just caught up the domestic market to the rest of the planet.

A year later and the brightness change seems like a lifetime ago.  But it had a big impact that may not at first glance be apparent.  Here are just a few of the consequences:

• Many small, regional mills stopped producing office papers.  The economics and their equipment just didn’t make sense because the larger mills were producing the 92 bright at 84 bright prices.  Well, at least for a time they were.  So the trend toward reducing industry capacity accelerated, which constricted supply.
  
  
• The move to 92 bright also made our market less attractive to many foreign mills.  It just closed the gap on their “high bright” value proposition too much to make sense for many of them to stay.  Their exodus further restricted supply.
  
  
• Final point highlighted here, is that all the supply restriction created an environment for the mills to float and sustain price increases.  We’ve seen three of them in 2006 and we might see one more before the year is over.

Today’s Big News - Mergers
Today we’ve handled the brightness change and absorbed the price increases.  The new buzz is mill consolidation.  Domtar and Weyerhaeuser announced they intend to merge into the “new Domtar.”  When that happens, slated for sometime in 2007 once they get through all the legal hurdles, the new Domtar will be the largest domestic producer of uncoated free sheet (what office papers are made out of).

What this merger means to an independent dealer remains to be seen.  But it is a BIG change in the traditional mill “hierarchy” because the new Domtar will be bigger than International Paper in North America.  Market leadership is changing hands.  It will be interesting to see how that changes the dynamics.

Last month International Paper made a big announcement of their own stating that they are swapping some assets and cash in Brazil with Votorantim Celulose e Papel S.A. (probably more recognizable to independent dealers as “Voto”).  One key outcome is that in February 2007 IP will own VCP’s uncoated freesheet machines, very much in support of their strategy to concentrate on uncoated papers.  Could this mean that IP will bring high bright eucalyptus pulp based paper into the U.S. market to fill the void left after Votorantim’s major reduction in exports to us earlier this year?

In Uncertainty One Thing Is Certain - Change
The mill mergers and consolidation beg more questions than we have answers for today.  But the changes are large enough that independent dealers should tune in.  Office papers usually account for 15-20% of a dealer’s revenue so these happenings are critically important.  Fortunately United Stationers has excellent relationships with all the major domestic mills and many of the large foreign mills as well, so no matter which way the winds of change blow, United is in a strong position.

Ch-ch-ch-changes are coming!  Stay tuned and check PaperRap.com’s Industry News section often for the latest.  We’ll do our best to keep you informed.