The Paper and Paper Products Industry makes everything from printing paper, to “peel to stick” labels, to cardboard boxes. A trip to a grocery store provides a glimpse into this industry's influence over daily life: the items on the shelves were transported in corrugated boxes from the producer to the store, the cereal is in a paperboard box made from wood pulp, the “on sale” sign is made from a coated specialty paper, the price sticker is a “peel to stick” label, and the receipt is mad from "thin rolled material."
Paper products are made by large conglomerates and small companies that specialize in a single type of paper. For example, industry leader International Paper Company (IP) makes paper, packaging products, and even has its own distribution service, whereas the smaller Neenah Paper (NP) makes only writing paper. Companies in this industry are facing rising energy and commodities prices, which are driving up production costs and cutting into profit margins. Hardwood and softwood, essential inputs when making paper, have increased in price 64% and 67% respectively in the from 2002-2007. As a result, operating margins for major paper producer Avery Dennison (AVY) fell from 7.8% in 2006 to 5.9% in 2007. Also, a slowing US economy impacts demand for consumer goods like toys and certain foods. This adversely affects the paper and paper products industry because when spending on these goods goes down, the revenues of companies that make packaging products also goes down.
==Companies in the Paper and Paper Products Industry==hello how are u doing
Paper companies produce uncoated writing and printing papers. These include industry giants such as International Paper Company (IP) and Domtar (UFS) as well as small companies that produce specialty papers. Specialty paper ranges from the production of the coated paper that is used to make greeting cards, by companies like Nashua (NSHA), to the production of pressure-sensitive material, by Avery Dennison (AVY) used by other corporations to make labels.
All items need to be packaged when going from point A to point B in order to protect the item. Consumer goods such as food and cosmetics need to be packaged not only when going from the producer to the distributor, but also need to be packaged by unit to be put on store shelves. Industrial goods like machines and machine parts need to be safely packaged before ending up at their final destination. Packaging can be broken down into two items: paperboard and corrugated fiberboard. Paperboard is a thin cardboard (think cereal box) that can be used as folding cartons and set-up boxes. Corrugated fiberboard (fancy name for a box) is made out of containerboard, which is just multiple layers of paperboard. The multiple layers of paperboard give the corrugated packaging its strength and allow for big and heavy items to be packaged in it.
Pulp is a dry fibrous material that is used to make paper and can be made chemically or by separating the fibers of wood. Pulp sold in thick sheets and often used at a paper mill is called “market pulp”. Another kind of pulp, “kraft pulp”, is chemically produced pulp using sulfate. Cellulose is a natural fiber from trees and plants that can be used to make a variety of products including paper and packaging products.
The timber business provides forest products, such as wood and pulp, to third party companies. By managing their own timberland, these business are able to make their products straight from the trees they grow. As of 2008, the only major timber based company was Potlatch (PCH). Prior, companies like International Paper Company (IP) and Temple-Inland (TIN) were major competitors in this business, but decided to divest away from the business in 2006-2007.
Rising cost of raw materials and commodities has forced many companies in the industry to implement several price increases on its products. Sonoco (SON) for example, raised the prices on its paper tubes and cores by 8% in January 2008.  Other companies, such as Smurfit-Stone (SSCC), have been forced to shut down facilities to cut costs; Smurfit-Stone shut down its containerboard operations at two facilities in 2008. 
The ability to obtain raw materials such as wood fiber, reclaimed fiber, paper, steel, aluminum, and caustic soda, at favorable prices is an essential part of the industry’s success. Paperboard prices saw a $50/ton price increase in the summer of 2008  and recovered paper costs have reached record highs. Higher commodities prices translate into higher production costs for companies, which forces them to either raise the prices of its products by placing the burden on the consumer, or to take the burden themselves by absorbing the higher costs and decreasing profit margins. For example, International Paper’s operating margins fell from 14.5% in 2006 to 7.6% in 2007. 
Higher energy costs are also putting companies in the same predicament as production costs continue to increase. Production plants and its machines are powered by oil and natural gas, both of which are seeing record prices. Higher energy costs translates into higher production costs and once again the company is forced to either pass the burden to consumers by raising prices or take the burden itself and suffer decreasing profit margins.
A decrease in the demand for products has forced companies like Sonoco (SON) to shut down mills due to “decline in demand for cores and subsequently in coreboard”.  The paper and paper products industry is dependent on the average consumer buying typical goods such as food and electronics but a slowing economy spells trouble for the industry. As consumers cut back on spending,  it leads to a decrease in the demand for these typical goods. The industry, especially the consumer and industrial packaging businesses, is dependent on a high demand for non-durable goods (goods that are replenished and replaced often) and durable goods to make money. As the demand for these goods drops, so do the industry’s net sales as there are fewer items that need packaging. Durable goods saw a 0.3% and 0.5% decline in orders during March and April of 2008. 
In addition, FedEx (FDX) can serve as in indicator to how well the packaging products business is doing. In a slow economy, business and people cut back on the amount of shipping they do in order to cut costs. Less shipping means a lower demand for boxes and paper envelopes that the paper and paper product industry make. In May 2008, FedEx reported that U.S. packaging volume fell by 3.4%. 
As the world becomes friendlier to technological change, the global demand for paper has taken a slight hit. Paper consumption per person grew annually in the 1980's and 90's, but has plateaued and fallen in the 2000's; consumption per person in the world's richest countries fell by 6% from 2000 to 2005.  For the companies in the paper industry, this simply means that there is less revenue to earn in the paper market. The United States is already seeing some affects of this technological switch-over. Major newspapers such as the Chicago Tribune and L.A. Times are cutting hundreds of staff positions because they simply can’t afford to pay their employees with the declining demand for paper newspapers . The United Postal service has continually increased the price of sending first-class mail as a result of steady quarterly losses. Although the demand for paper is still very high and the average person still consumes more than 500 pounds of paper annually,  people are starting to make the switch-over to electronics which is starting to bring those consumption numbers down; in a shrinking paper market, paper companies have less opportunity for growth.
As gas prices flirt with all time highs,  families are cutting back on the amount of driving they do. So when it comes to shopping more people are turning to the internet to buy all the things they need. J.C. Penney (JCP) reported that online sales increased 8.7% at the beginning of 2008 while Gap (GPS) had a 21% increase; both stores also showed a decrease in same store sales – J.C. Penney’s were down 7.4% and Gap’s 11%.  As the amount of online shopping increases, so do the demand for boxes that companies use to ship out their products. Higher demand for boxes translates into higher revenues for corrugated packaging businesses.