THE GLOBAL PAPER MARKET

Question: Why are paper prices so high?

Answer: Inevitably, supply and demand. In the late 1980s and early 1990s, paper prices were significantly lower - the result of excess capacity and muted demand from customers. Most paper manufacturers lost money. Last year demand began to improve in North America and Europe, but supply did not keep pace. At the same time, the fast-growing Asian econ-omies were buying paper in vast quantities. - enough to convince manufacturers to divert supply from markets in North America and Europe. Now there is just not enough paper to satisfy everyone.

Question: So why don't the manufacturers make more?

Answer: It takes a year to 18 months to bring new capacity in newsprint and other paper grades on stream. Leading companies are indeed planning to add capacity, but the new product will not be available for many months.At the same time, some manufacturers are hesitating: they don't want to build capacity just in time for an economic slowdown and a decline in demand. That is how they got into trouble in the last downturn.

Question: When are prices likely to fall?

Answer: Most analysts expect the tight market to persist well into 1996. On past form, the industry will then find itself with too much product and prices will drop.

Question: Isn't there some way to smooth out the cycles? Why don't customers and suppliers co-operate?

Answer: Tradition. Previously big buyers of paper squeezed their suppliers mercilessly. As markets tightened, suppliers gave back as they received.

Question: Why is there so much demand for paper anyway? Weren't we supposed to be moving toward the paperless office? And what about electronic information systems?

Answer: The paperless office is a myth. We may use computers, but we still like to print out our work. We also fax material, producing two lots of the same document at a stroke. As for electronic information: yes, up to a point. But we won't be reading our news on a computer screen while going to work on the Tube just yet.

MATHEW HORSMAN