Capacity Boosts Take Toll on Many Firms --- Supply-Demand Mismatch Exerts Pressure on Prices Across Several Industries
The economy was perking along and paper prices were hitting record highs early last year as Union Camp Corp. began reaping the benefits of a grand expansion plan. Four years earlier it had installed some of the biggest, newest machines to increase its capacity by one third. The orders were rolling in.</br></br>There was only one problem: Other paper companies had the same idea. As the supply of container-board -- the basic material for packaging crates -- overwhelmed demand, prices plummeted to $350 a ton from $520.</br></br>"Everyone wanted to maximize their new investments," says Stuart Howell, Union Camp's head of strategic planning. "There were too many big dogs at the same dish." He is hoping the pricing trend will reverse with the Oct. 1 posting of a $30-a-ton increase. But, he adds, "it's too early to tell if it will stick."</br></br>Far from unique, the supply-and-demand mismatch that has pushed down prices in the paper industry has become a problem for a number of American industries as evidence grows that companies have invested too heavily in new plant and equipment. The trend already has thrust some companies into cutthroat pricing battles to keep their own production lines running at a good clip. Others in such areas as steel and rubber are bracing for more competition from new plants due to be fired up next year and beyond.</br></br>While such pricing pressure is good news for consumers, it is likely to eat into the heady profits many companies are currently enjoying. And if the economy weakens, the capacity growth in many other industries could prompt another round of belt tightening.