Nowhere in the media industry has the impact of rising raw material and energy costs been more apparent than in paper. Skyrocketing paper prices in the post Covid period have had a severe impact on publishers with large print portfolios. And with the war in Ukraine still raging there doesn’t seem to be any end in sight. It’s against this backdrop that FIPP recently sat down for a webinar with UPM Communication Papers to look at the future of the paper industry in a time of turmoil.
And Ruud van den Berg, Senior Vice President of Global Sales at UPM Communication Papers – the world’s leading producer of graphic paper – had some reassuring words for media businesses. While a decline in demand has resulted in some producers turning its back on magazine paper completely, UPM is not going anywhere.
“We are very clear that UPM is committed to graphic paper,” said Van den Berg, who joined FIPP President and CEO, James Hewes for a wide-ranging discussion. “Of course, we have to recognise that paper demand has declined quite strongly and that we have been adjusting our capacity in the last 15 years. But nevertheless, we at UPM are convinced that paper will stay. Paper will never disappear completely.
“The big question is when will the decline start flattening out. But I can say with pride that UPM has been able to diversify, also thanks to the cashflow our Communication Papers division is generating. So, we believe in the future of graphic paper.”
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Changing the narrative surrounding paper
The relationship between publishers and paper suppliers is very much a two-way street and Van den Berg said there were steps media organisations could take to boost the image of paper production, especially since consumers are becoming increasingly strident in their demands for producers to demonstrate they are reducing the environmental impact of their products.
“What is important when it comes to the industry is to convey the message of sustainability,” he said. “Paper is still being seen by the majority of the people out there as – you are destroying trees and the industry is very bad for the forests.
“Through the Print Power and Two Sides initiatives a lot of good messages are being conveyed but for the paper industry it is extremely difficult to convey this message to the consumer. Here, magazine and newspaper publishers can play a big role and together we can convey the message that paper is not unsustainable. Paper is a very environmentally friendly product. That will bring us a major step forward in believing in the future of print and paper.”
UPM is turning words into deeds when it comes to sustainability, investing in electric boilers at eight of its paper mills in Germany, replacing the use of fossil oils. The company also supports the UN’s efforts to limit global warming to 1.5 degrees Celsius and is aiming to decrease its CO2 emissions by 65% by 2030.
“Sustainability is very highly ranked in the UPM strategy,” said Van den Berg. “It was like that before the Covid crisis, and it became stronger during and now after the crisis. We are investing in our mills to make them more sustainable and keep them cost effective.”
Negotiating the headwinds
As has been the case with many companies, UPM has had to roll with punches since the outbreak of Covid, making sure its work force remained safe, watching its order book decline by 50% and then ensuring its paper mills were ready and firing when demand picked up dramatically.
Then there was also a five-month strike by Finnish paper workers that was finally settled in April last year – an outcome Van den Berg describes as “the right agreements for both workers and UPM”.
Add a considerable increase in logistical costs and the hike in energy prices and UPM have been hit by severe headwinds over the last few years that’s inevitably had an impact on the price of paper.
“During lockdown container ships became extremely expensive and UPM Communication Papers has a very strong global presence so that had a big impact,” said Van den Berg. “We also have to talk about the fixed costs. We had the strikes going and everybody wants to have more money and in a company with 18,000 employees, you can imagine what sort of impact that has.
“So, it is little bit short-sighted to just blame the energy prices for what has been happening with the paper prices. People see the energy prices going down and think we should now reduce our paper prices as well. Energy prices are still five times higher than they were before the war in Ukraine started so the prices are still high. Then you have logistic costs and fixed costs, so the margin has become very thin again.”
Van den Berg assured media businesses that their wellbeing was a big consideration when drawing up new prices for paper.
“Whether paper prices go up or down, what’s important is that we have a sustainable margin that allows us to still invest in our mills and it’s all input cost that will decide it,” he said. “If everyone looks closely at the margin figures UPM Communication Papers is making within the company, one could not say it’s exaggerated for a capital-intensive industry like we are.
“In 2022 when the market was tight because of the strikes we encountered, and all the closures that happened in the year before, it was important that we took the responsibility not to accelerate the decline of paper. At that time, it would have been easier to increase the prices much more than we have been doing, but we also wanted to understand our customer situation and not accelerate the decline of graphic paper because we are very aware there is no elasticity in price and demand with regards to paper. Once a magazine is closed it is very unlikely that it comes back again.
“It is also important for our customers that they see continuous supply. If you are producing paper but not making money producing paper, then it doesn’t make any sense to continue and then you endanger the continuity of supplies to your customers. It is our future, hence it’s our responsibility to make sure our customers see print as a valuable medium to convey their message to their customers.”
Turning the page together
Looking towards the future, Van den Berg said the way the paper industry evolves will be very much influenced by plans media organisations have for print.
“What is the future of paper, how will demand continue to develop, how will prices develop? The attendees of this webinar are the only ones that can answer those questions,” he pointed out.
“We can produce as much paper as we want but if it is not being printed into a magazine or a flyer, we can only add it to the waste paper. We are very much depending, with regards to the future, on what the majority of FIPP members have to say about how they believe in the future of paper.”
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