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Look beyond the surreptitious semantics of the government's policy speak and you can see the basic principles of its recovery plan: earn less and pay more. While for many the impact of this will come as a shock, for the print sector it is something to which they have become accus­tomed, particularly when it comes to procuring paper.

Paper price rises came thick and fast in the first half of 2010, while annual rises are becoming all too predictable. As a result, printers are faced with a stark choice: absorb price increases or pass them on.

Most printers have been forced to do the latter, having to run the risk of losing customers. When you look at the figures, you can see they have had little choice. A recent printweek.com poll found that 40% of printers have been paying between 11%-20% extra for coated paper over the past 12 months, while 34% said the cost had increased by more than 20%.

It's not just a matter of raw materials getting pricier – global events have also had an impact. For starters, the strike by Swedish dock workers on 4 March paralysed the export trade of a country responsible for producing around 4% of the world's pulp. This was followed in April by a 10-day strike in Sweden by around 3,000 paper mill workers at a cost to the industry of around €50m ($63m).

Perhaps the biggest impact, however, was February's earthquake in Chile. The country produces around 8% of the world's pulp and production was completely halted as a result of the disaster, with an inevitable knock-on effect on supply.

It was this supply issue that Sappi Fine Paper Europe argued was at the root of its second price increase at the start of this month, saying the first price rise "had barely compensated for the extraordinary increase in pulp costs" as a result of the earthquake.

Multiple factors

While the earthquake didn't help matters, it is by no means the only reason there is a "vastly diminished" global stock of pulp, says Mike Gee, managing director of Denmaur Independent Papers and president of the National Asso­ciation of Paper Merchants (NAPM).

"The other thing becoming more evident is that the consumption of paper is still rising in other markets outside of western Europe and this has put further strain on world supplies in terms of the mills and their profitability," he says.

He adds that, earlier in the year, buyers in the South East Asia were purchasing large stocks of pulp and this increased pressure in the supply chain.

Kieran Ferguson, commercial director at carton and graphical board merchant Warren Board, believes that the close proximity of the multiple events was bound to knock confidence in the sector. "It highlighted the fine line between supply and demand within Europe," he says.

Wider issues

He adds that a number of mills and machines have closed in the graphical board market, with the slack not just taken up by the remaining European manufacturers, but also by mills in Asia and South America. This is causing problems due to the non-European manufacturers pulling out of markets due to currency and supply issues.

"With a large proportion of the non-domestic mills being purchasers of market pulp, they're extremely vulnerable to supply issues," Ferguson claims. "In addition, these non-domestic mills trade predominantly in US dollars and with this currency strengthening, it has put greater pressure on price levels for these mills. As a result, many have withdrawn from the market or have severely cut their tonnage coming into it."

All of this has led to greater demand being placed upon domestic mills, to the extent that lead times are now well into the back end of 2010 or even early 2011.

The natural order dictates that when something is difficult to get hold of, its value increases and paper is no different. Prices are rocketing, but Robert Horne Group marketing director Philippa Charlton says every effort is being made to mitigate the price increases.

"We are working with our suppliers in an effort to keep any price rises to a minimum, but there is undoubtedly continued pressure from the mills to pass on their soaring manufacturing costs," she says.

It's like BP's efforts to cap the oil leak in the Gulf of Mexico. Sure, you can stick a plaster on it, but bubbling beneath the surface the pressure is rising. There is a feeling in the paper sector that the same thing is happening – the plaster is just hiding the inevitable, or even making the situation worse, so that the eventual rises will be a bigger and unexpected, whereas planned incremental rises may be more manageable.

Certainly, the situation does not look like resolving itself any time soon. NAPM director Tim Bowler says his members were hoping for signs of recovery and so the continued decline has been very disappointing. Paper manufacturers he has visited recently have talked of pulp prices nearly doubling in the past six months.

The problem has been put into statistical format by Antalis McNaughton, who in an effort to explain their own price increases, prepared a report for their customers on the situation in the sector. It claims there has been a significant year-on-year decline in paper volumes in all countries and that the economic downturn has resulted in an 11% reduction in UK paper consumption.

The numbers may well be right, but to a printing company they are largely irrelevant. Any increase, no matter how relative, cuts into margins and heaps on more pressure at a time when things are pretty intense already.

Fortunately, the merchants appear to have better news. Antalis McNaughton says it has had "no formal indication of further price increases" in 2010 from its suppliers. Warren Board's Ferguson adds that currently, they are "unlikely to see further increases on recycled board grades". However, he adds: "With lengthening lead times and pulp costs nearly at an all-time high, we may see further upward movement in virgin fibre".