ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, April 2, 1996 TAG: 9604020040
SECTION: BUSINESS PAGE: B6 EDITION: METRO
DATELINE: NEW YORK
SOURCE: ASSOCIATED PRESS
Tissue paper. Disposable diapers. Note pads. Envelopes. They all have one thing in common: pulp, a decidedly unglamorous raw material made from wood chips.
With little ado, pulp prices have dropped precipitously during the past six months, resulting in major savings for those who buy it.
Procter & Gamble recently announced it is cutting prices on Charmin, Puffs tissue and Bounty paper towels since it can make them more cheaply.
Other companies, too, suggest price cuts may be on the way.
The reduction in pulp prices comes as manufacturers of all types of paper are finding they can't charge as much for their goods. Producers of newsprint, copy paper, material for corrugated boxes and the like are suffering.
On the flip side, prices are falling only after recently rocketing to wild heights. The dramatic moves are anything but pulp fiction.
``Clearly, on the tissue side it's starting to show up already,'' said Mark X. Diverio, a paper industry analyst at UBS Securities Inc., a brokerage firm.
``If it's a quick downturn followed by a snapback later, consumers might not see a big benefit. But if it settles down for several months,'' he said, ``it will trickle to lower prices for notebooks you buy at Staples and reams of paper for your copy machine.''
Sellers of products hit by paper prices that increased sharply through late last year - some grades doubled over 18 to 24 months - are unlikely to rush through price cuts to immediately give back their newfound savings.
Pulp, which looks like rough, white cardboard, is made from wood chips and used as the raw material of all paper products. The list price of the benchmark pulp grade has fallen to $600 a metric ton from a peak of $1,000 or so a ton in late 1995. With discounts it sells for less.
Reasons for the decline are complex.
Companies tended to buy large amounts of pulp during the price run-up to lock in prices, and now are working through those stockpiles and buying less new pulp. Economic weakness is playing a role, particularly in Western Europe. Additional pulp-making capacity is also coming on line.
``We think the decline in prices, which started late in '95, is really because there has been so much inventory buildup,'' said Montye Male, a spokeswoman for Weyerhaeuser Co., the nation's leading maker of pulp for sale in the open market.
That suggests that once the stockpiles have been used up, demand will return and prices will snap back. Not all agree.
But regardless of whether prices improve quickly, current pulp-price declines only affect certain products and certain producers. The effect depends on whether paper products companies make their own pulp.
Most U.S. producers of less complex products, such as newsprint and material for boxes, own pulp-making facilities. Buyers of pulp tend to be makers of products that require more manufacturing, such as tissue paper and adsorbent fiber for disposable diapers.
Prices of paper products not affected by the declining price of pulp are falling as well, however. Large stockpiles created during price increases are one factor. Declining economic activity is another.
For example, paper used for copy machines is off about 25 percent from its peak. A stiffer product used in shipping boxes is down about 20 percent. Coated papers, used in magazines and companies' annual reports, are off as much as 20 percent.
Even newsprint, a commodity that has seen a sharp price rise over the past two years, is stabilizing. An April price increase was canceled, and some analysts say lower prices are in the offing.
``You're talking everybody, you're talking the whole market,'' said Mark S. Rogers, a paper industry analyst at the brokerage firm Prudential Securities Inc. ``Virtually everything's come down in price.''
It's nothing to sneeze at.
Procter & Gamble made a splash by recently announcing that as of April 22 it will cut prices of Puffs tissue and Charmin about 9 percent. Bounty paper towels will come down about 5 percent on June 3. Whether the price reduction is passed on to consumers depends on grocery stores and other retailers.
Kimberly-Clark Corp., maker of Kleenex, said it will follow with some similar reductions. Others say they're considering it.
LENGTH: Medium: 82 lines ILLUSTRATION: GRAPHIC: chart - Pulp Savings. APby CNB