HODGE, La. -- At Plant 56, the sensory assault is unrelenting.
Fueled by special potions like black liquor, white liquor and a host of other chemicals that pulverize wood into paper, the smells waft around the thundering machinery like little pockets of pungence -- first piercingly sweet, then acrid, then hot, then sulfureous. Powerful enough to taste, the odors are at once specifically distinct and generally obnoxious.
"My kids complain about it when they come down here," said Marion Burn, the general manager at Stone Container Corp.'s Hodge Mill. "But I tell them, 'That's the smell of money.' Someday they'll understand that."
It is clearly understood in this tiny company town in the rolling forest land of northern Louisiana, where every day about 350 trucks rumble through the gate off Highway 167 delivering stacks of felled pine, mounds of wood chips, recyclable paper and other products that keep the Hodge Mill running nonstop.
"We just can't make paper fast enough. It seems like the whole world wants paper at once," Mr. Burn said.
Mr. Burn's assessment is on the mark. Driven by rising worldwide demand, the paper industry is booming, not only here but in hundreds of other mills across North America, generating whopping profits for paper manufacturers and mounting anxiety for those who buy paper products by the truckload.
Consumers are beginning to see the effects of higher prices in some small ways, such as the declining availability or outright disappearance of paper grocery bags. More noticeable changes are price increases for toilet paper, paper towels and uncoated white offset -- or office paper, which has risen 84 percent in the past year, according to Pulp & Paper Week.
On the grander scale, last month's closing of the Houston Post was blamed on the price of newsprint, which has gone up more DTC than 50 percent since last spring.
The upward price pressure is reflected in the April Producer Price Index figures released recently by the Department of Labor. In the last three months the price of paper -- from magazines and phone directories to fast-food sacks and billing forms -- rose at an annualized rate of 51 percent.
Various liner board and corrugated products from pizza delivery boxes and other containers to paper cups jumped by as much as 47 percent. And wood pulp, the critical raw material used in paper production, leaped at an annualized rate of almost 75 percent.
"We've seen the early effects of this in the costs to newspapers, and now it is making its way into the more widespread costs at the grocery store, driven by higher packaging costs," said Diane Swonk, deputy chief economist at First National Bank of Chicago.
"Corn is a very small percentage of the price of corn flakes, but the box you put it in is a very large percentage and things like paper prices influence the price of corn flakes."
The paper price spiral is a multibillion-dollar tale of supply and demand dealing with some of the more mundane items of daily life.
Demand for paper is a good economic barometer because it reflects the strength of advertising, manufacturing and overall economic health, especially in developing nations. While the United States remains the largest consumer of paper, growing overseas markets are raising the price.
The combination of economic recoveries in Europe and Asia plus rapidly growing markets for paper in developing countries practically eliminated the inventories of inexpensive paper that had been purchased since the late 1980s.
In the historical cycles of the boom-and-bust world of paper manufacturing, the smart money usually bet -- and won -- that manufacturers would misread demand and pour billions into new production capacity, which would be completed just in time for them to witness the next recession and see prices plummet.
Capacity not growing
That happened five years ago, and many companies are only now crawling out of the red ink.
History is not repeating itself. At least not yet.
What is different in this cycle is that no significant new production capacity has been announced to meet the demand. Company investments instead are directed more at buying other paper companies.
"The temptation is huge to add capacity, but this is a matter of economy and stability. They don't want to create tomorrow's problem" by overbuilding, said Pierre Lachance, spokesman for the Canadian Pulp and Paper Association, in Montreal.
Other forces have combined to make the paper recovery unusually strong. The declining value of the dollar plus the strong overseas demand for paper has dampened the import market, while exports for certain types of paper have exploded. Tissue exports jumped 48 percent last year alone, and are up 359 percent since 1989, according to industry figures.
The international demand for paper is making life tough for many domestic buyers.
