In a recent graphics paper industry update for 2021, Millcraft COO, Greg Lovensheimer, shared insights into the effects of 2020 and its impact on the supply chain. The following post is one part of the larger presentation. You can view the entire presentation on-demand here.
MILL INTERRUPTIONS, CLOSURES, & INVENTORY LEVELS
At the NPTA Paper Distribution Conference in Naples Florida last January, no one anticipated the full impact of the COVID-19 pandemic. 2020 was fraught with changes, so much so that many suppliers believe the full effects of its fallout have yet to be realized. While the lasting effects of COVID have yet to be known, one thing is clear. The impact on the graphics paper supply chain and market capacity has been significant.
To give some perspective to the changes the industry has undergone, less than a decade ago mills focused on operating paper machines and building inventory. The historical financial mindset focused on opportunity costs. Paper manufacturers set out to maximize machine time, operating at full capacity regardless of demand. If there was an excess of inventory, the solution was to store it in a warehouse somewhere.
That is no longer the case.
Sales & Operations Planning Dictate Supply
Businesses downstream may not have been aware of that shift, focused on managing their day-to-day operations. However, its impact manifested during the election surge in mid-October.
Finding some of the coated cover and opaque grades for direct mail printing was a challenge. Mills saw a drop off in demand and they curtailed capacity accordingly. This action was in balance with their forecasted demand however there was no surge protection.
The industry could not react because there was no longer this giant buffer of inventory in mill warehouses. Inventory is balanced on a razor’s edge in today’s world, a key factor to keep this in mind for 2021.
Based on what we experienced in 2020, it is fair to say 2021 will be filled with volatility. We expect the markets to continue to exhibit erratic behavior in print demand, in COVID outbreaks and surges, in vaccine logistics and in the expediency of our economic reopening. We anticipate this year will be in a state of flux, stop-start-stop-start.
Given all the uncertainty, a secure supply-chain should be at the top of every printer’s list for 2021. Add to these instabilities the aforementioned lack of buffer from the mills, and those without a strong local supplier relationship are going to feel it.
Diversification – Pandemic Pivot
In 2020, we saw many mills pivot their assets and move into diversified markets. This pivot may have been a future project the manufacturer already planned, but like everything during the pandemic, COVID accelerated to that timeline.
Under the early expectation of a V-shaped recovery, we saw suppliers take temporary downtime. As the pandemic continues and economic recovery stalls, permanent mill closures and the ripple effect are being felt throughout the graphics paper industry.
Prior to COVID, Verso the largest NA coated paper manufacturer, closed the Luke, MD mill in 2019 taking out 410K tons and moving those grades over to the Wisconsin Rapids, WI mill. Verso was still feeling the effects from this closure when COVID hit. They ultimately announced the closure of Wisconsin Rapids and 520K tons coming out of the market. Add to that the Quinnisec, MI mill taking downtime. This closure resulted in further capacity reductions, with 56K tons out of the market.
To learn more about the impact of COVID and the lasting effects of the market disruption of 2020, view the presentation in it’s entirety, on-demand here: Millcraft Graphics Paper Industry Update for 2021.