Pulp Paper Five Forces

Pulp & Paper Five Forces Industry Analysis
Mike Bartusch Dan Hallquist Susie Dorsey Cody Schultz
Competition in the Paper Industry

Intensity of rivalry is high, due to: -Low Industry Growth -High Fixed Costs -Brand Identity -Low Concentration
Growth in the Paper Industry

Low predicted revenue growth by 2013 less than 2% Since 2004, average annual revenue growth has been 1.14%, w/ negative growth past 2 years Predicted 4% annual decrease in employment
http://www.ibisworld.com.floyd.lib.umn.edu/industry/default.aspx?indid=406
Growth in the Paper Industry
High Fixed Costs

Very much an industrial process A variety of large fixed costs Today, new paper machines are nearly 40 feet wide, hundreds of feet long, and over two stories high. Up to $1.5 billion dollars Creates exit barriers
http://www.cpbis.gatech.edu/resources/industryfacts/today.htm
Brand Identity
Many paper consumers (printers, publishers, newspapers, etc) rely on single firm Easier to manage, established relationship Constant access to materials, supply, inventory Possibility of ongoing reorders makes each customer important
Low Industry Concentration

International Paper Company 13.2% Domtar Corporation 9.8% AbitibiBowater Inc 7.8% NewPage Corporation 5.7% Other 63.5% Top 4 companies control 36.5% of market share 'Others' have 1 4% Mergers and acquisitions (Domtar purchased Weyerhauser in '07)
Major Inputs Required

Fibrous Material
Pulpwood, Recovered Fiber, Recycled Fiber
Chemicals
Required for multiple stages of production
Labor
Major factor historically Decline in labor intensity currently
Energy
Highly energy intensive industry
Fiber Source
Major Cost Implications

Most fundamental component of paper Largest expense for paper companies
2008 Cost Structure % of Revenue
Purchas es Wages Utilities Rent Other Profit
Threat of Forward Integration low

Larger firms already vertically integrated
(Source: IBIS World)
Fiber Cont.
Limited Presence of Substitutes
Eucalyptus pulp emerging as viable option
Eucalyptus pulp made up about 53% of the hardwood pulp market in 2007, compared with just 29% in 1980
Recycled fiber
7% of recycled paper is used to produce printing and writing papers
Switching Costs
Minimal facility configuration costs Major costs associated with transportation
(Source: S & Ps Industry Survey)
Energy Supply
Major Impact on Cost
Paper Industry requires massive supply of energy
Historically represents 10% of production expense Currently it can exceed 15%
Presence of Substitutes
Internal waste streams Biomass residuals from external source
Possibility of Backward Integration

Internal energy production and distribution
Supply of Chemicals
No Availability of Substitutes
Required in paper-making process
Impact on Production Cost

Cost of chemicals on the rise
In 2008, The Dow Chemical Co. announced that it would raise prices on all of its products by 20%
Minimal Threat of Forward/Backward Integration

Chemical Industry requires experience curve Paper industry most capital intensive sector in manufacturing
(Source: S & Ps Industry Survey)
Bargaining Power of Suppliers Conclusion

The high cost and reliance on necessary inputs provides a challenge to the paper industry
Provides leverage and bargaining power to suppliers Threatens industry profitability
Companies must position themselves in order to negate this force
Rise of on-demand printing

Increase in personal printing Printing of on-line journals or articles hand outs Increase in cut-size demand
Buyers demand
Uncoated Free sheet 2007 shipments 11,665 million tons (down 4.4% 2006) Imports 543 million tons Demand 11,757 million tons (down 5.5% 2006) Total Printing and Writing Papers 2007 shipments 27,379 million tons (down 0.8% 2006) Imports 3,298 million tons Demand 29,457 million tons (down 3.0% 2006)
Consumer shift
Other Countries are looking to places like Latin America and Southeast Asia for products the US shifting to an importing country.
Industry Pricing
Uncoated free sheet prices continue to rise
- after the $60/ton price hike initiatives announced for March are all in place. - Business Papers, (copy papers) prices rose $50/ton in March and another $10/tons in April. Offset roll prices rose $30/ton in March and another $20 in April. At the same time, demand appears to be easing.
Barriers to Entry
Economies of scale
Purchasing Managerial Financial Marketing
Barriers to Entry
Brand Identity Switching Costs Capital Requirements Distribution Government Regulations
Substitutes
Determinants of Substitution Threat
Relative Price Performance of Substitutes Switching Costs

Pulp Paper Five Forces

Uploaded by

Copyright:

Available Formats

Pulp Paper Five Forces

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Pulp Paper Five Forces

Uploaded by

Copyright:

Available Formats

Pulp & Paper Five Forces Industry Analysis

Mike Bartusch Dan Hallquist Susie Dorsey Cody Schultz

Competition in the Paper Industry

Growth in the Paper Industry

Growth in the Paper Industry

High Fixed Costs

Low Industry Concentration

Major Inputs Required

Major Cost Implications

2008 Cost Structure % of Revenue

Purchas es Wages Utilities Rent Other Profit

Threat of Forward Integration low

Possibility of Backward Integration

Impact on Production Cost

Minimal Threat of Forward/Backward Integration

Bargaining Power of Suppliers Conclusion

Companies must position themselves in order to negate this force

Rise of on-demand printing

You might also like