Paper-makers await a verdict

Date: 08/02/1996

By Tim Jones

EUROPE'S biggest manufacturers of paper for newspapers and magazines are becoming impatient at the slow progress made in the investigation into alleged price-fixing launched last year.

“We have not heard anything, which bothers us,” said Hugh Grace, deputy director-general of the Confederation of European Paper Industries (CEPI).

“They promised to let us know by the end of the year if they had something to say.”

Forty newsprint firms throughout Europe were raided on 25 April last year after complaints from publishers in all member states, especially France, where consumers are obliged to buy their paper from a centralised cooperative.

At the time of the raids, the Commission said the investigation would last a maximum of six months, but officials are still sifting through reams of seized documents in Finnish and Swedish.

The inquiry began after the price of pulp and paper products rose, along with that of newsprint, in 1993-1994. The companies raided included Norway's Norske Skog, Sweden's Stora, SCA and MoDo and Bridgewater Paper in the UK.

Although a total of 40 companies were raided, in fact only seven Scandinavian producers supply 75&percent; of European consumption of newsprint, which comes in three main grades - 'super calendar', 'light-weight coated' and the standard paper for a daily newspaper.

Stora Kopparbergs Berslags AB alone produced 1.6 of the 8.8 million tonnes of newsprint used in the EU in 1994.

In the run-up to the investigation, publishers and Euro MPs complained to the Commission that the already hard-pressed newspaper and magazine industry was coming under added pressure from a sharp rise in the price of a raw material, accounting for as much as 30&percent; of a journal's retail price.

Competition Commissioner Karel Van Miert, while not prejudging the findings of his officials, said at the time that an investigation was needed given that, “in a very short period of time, there were price increases of about 20&percent;”.

That was at a time when the paper industry was still at its lowest ebb in decades. Since 1989, falling prices and volumes of most paper grades had pushed companies into losses as demand grew by just 2&percent; a year, compared with as much as 6&percent; in the Eighties.

Based on those growth rates, many paper producers decided to expand aggressively and borrowed to finance an increase in capacity of as much as 25&percent; in some paper grades. This was exacerbated by the weakness of the US dollar and intensified competition.

In the 18 months that followed, prices rocketed. Newspaper and magazine producers began to stock up to avoid being hit by further price increases. Paper companies, some of which had been on the verge of failure just a year earlier, notched up record profits.

The four big Finnish paper-makers reported profits of around 655 million ecu in the first-half of 1995, more than 250&percent; above those for the same period in 1994.

All this has simply added to the suspicions of publishers. The industry, on the other hand, had a simpler explanation.

For them, the turnaround for paper began in mid-1994 with a sharp increase in demand for linerboard - the paper grades used for making corrugated boxes - especially for export to Asia and Latin America. As a consequence, the price of pulp, paper's base raw material, also surged.

At the same time, many countries began to emerge from a period of slow growth or recession. The speed of the change in the demand cycle took producers by surprise and the market was squeezed, leading to a precipitous price rise.

However, prices peaked at the end of last year. In early December, the leading producers of pulp in Europe and North America announced cuts in prices for the first time in two years.

To people in the paper industry, this kind of volatility, which is so typical of the sector, shows they were not involved in a cartel.

“The purpose of a cartel is to keep the price at a high and stable level, but if you look at the price of newsprint, it has gone up and down,” said Matts Agurem, the spokesman for Stora. “So if there has been any cartel in operation, it hasn't been very efficient.”

He admitted that the price of newsprint had risen in 1995 and again slightly at the beginning of this year.

But he added: “Every time the price increases, it does not have to mean there is a cartel.”

To Grace, the publishers' response reflects a double standard. “We don't have a lot of sympathy with those who were prepared to let us bleed to death and who are now complaining that our prices are higher.”

But while he wants a decision from the Commission soon, Grace says that if it simply rules that there is insufficient evidence, this will not be satisfactory.

“We're not interested in a verdict of 'not proven', because it suggests guilt where we do not believe there is any.”