What Are the Major Cost Driving Factors in the Paper Market

Industrial packaging, newspaper print, stationery, and specialty paper collectively constitute the overall paper market. The paper industry is one of the most booming industries in the world, and it is majorly dominated by regions such as North America, North Europe, and East Asia.

However, according to the global paper industry outlook, the impact of technologically advanced media and the rapid growth of online consumption has affected the paper industry negatively. The extensive adoption of paperless alternatives has led to narrowing demand for writing and printing news prints as well as research papers. Though the demand for writing paper, printing, and newsprint is decreasing on a global scale, the e-commerce market has prompted the accelerated development of the express delivery market, and consequently, the need for packaging paper is expected to grow.

Paper Industry: Production & Consumption

The key growth drivers for the global paper industry are the increasing daily print distribution in developing nations, and an increased sales of printed magazines or books in the U.S. The U.S. paper mill industry is predicted to decrease at the rate of 2.5 percent annually by 2022. On the other hand, the sanitary paper commodities production market is anticipated to grow by 0.6 percent to reach $12.3 billion by 2022.

The expanding literacy rate in the developing countries also augments the growth of paper marketing and paper production. The paper market has experienced stiff competition from electronic media. Moreover, in the age of internet and the prompt transformation of the conventional media industry into new media, the paper industry will also suffer enormous pressure for adaptation. The successful paper organizations will align their products accordingly and focus on the dynamic requirements of the e-commerce space.

Cost Driving Factors in the Paper Market

With the production and consumption of paper in mind, let’s take a look at the major cost driving factors in the paper industry.

  • The Demand – Supply Dynamics

One major price driver of the paper industry is the supply-demand dynamics. Disturbances in supply system such as natural disasters, layoffs or plant closures by companies may lead to deficiencies in the paper industry and a tight supply at the exporter’s level. Likewise, an inadequate demand from the consumers or the importers may lead to the price drop. Furthermore, an increase or decline in the demand from the end-user segment will lead to companies declaring price variations.

  • Raw Material

The usage of raw material is a cost driving factor for the paper market, as it accounts for nearly 60 – 65 percent share of the entire paper production process. Every type of paper requires a different type of raw material for the production, which could either be recovered pulp or virgin pulp. After the selection of the raw materials, the final cost is approved by the manufacturer. Moreover, the cost of obtaining pulp is an important component to ascertain the valuation of various categories of paper. The market for pulp has grown in a lucrative manner, wherein it is being applied in a number of segments such as packaging and hygiene products; however, the utilization of graphic papers has decreased tremendously over the years.

  • Service Cost

Service cost in the paper market includes maintenance of the mill and fuel and electricity requirement for running the mill. Such costs directly influence the overall cost of paper production. Therefore, service cost is regarded as one of the main cost-driving factors of the paper industry. Even when the service cost isn’t fixed, it acts as a major expense for the organization producing paper.

  • The Cost of Labor

The cost of labor doesn’t impact the pricing factor of the paper industry on a major scale. However, in the case of bulk paper production, the labor cost may influence the overall cost of paper production. In nations such as China and India, the cost of labor is comparatively cheaper due to an abundance in the workforce. On the contrary, in regions such as Europe and North America, the workforce is expensive due to the literacy rate. Labor cost changes from region to region based on the skills and procurement of the workforce.

For several decades, the paper industry has increased the demand for a closed-cycle pulp mill, and the driving forces behind this continued application differ from organization to organization. The web presents opportunities for cost-effective advertising and journalism through online communication. Plus, upcoming technological advancement may lead to a significant deterioration in printing houses and paper mills.

The rise in the evolution of advanced computer hardware, smartphones, and storage systems has also decreased the demand for paper. However, the demand for coated paper for high-end print specifications such as brochures and magazines and other undercoated writing will decrease distinctly and be substituted by the digital world.

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