Newsprint Price Continues Up

Philip M. Stone June 4, 2010 Follow on Twitter

Slowly but surely newsprint producers have increased pricing by 14% this year with FOEX Industries reporting this week’s US benchmark price for 30-lb standard newsprint at $581.73, but that is still around $100 below what most Canadian mills need to make a decent profit, especially with the near parity of the Canadian and US dollars. More price increases are on the way.

Producers continue to squeeze supply – AbitibiBowater in May idled its Quebec Gatineau 2 machines cutting off some 310,000 metric tonnes of annual newsprint -- and mills elsewhere are switching away from newsprint, putting more pressure on the law of supply and demand. Even so, getting the US price up has been far harder than expected although several newspaper groups are now saying they expect their Q3 and Q4 newsprint prices to be higher than the same time last year which is a pretty safe bet considering newsprint hit its low of $445.89 a metric tonne in September, 2009.

Publishers, of course, continue to do their utmost to reduce newsprint usage and the results can be dramatic. Belo, for instance, announced in its Q1 earnings report, “Newsprint, ink and other supplies decreased $8.397 million for the three months ended March 31, 2010, when compared to the same period in 2009. This decrease is related to a decrease in newsprint consumed. During the three months ended March 31, 2010, the Company’s publishing operations used approximately 14,138 metric tons of newsprint at an average purchase price of $540 per ton. Consumption of newsprint for the same period in 2009 was approximately 21,087 metric tons, at an average purchase price of $704 per ton.”

So Belo used about one-third less newsprint than it did in the same period a year ago and what it did use cost an average of 30% less. That’s the type of math that has been killing producers.

There are signs that the freefall in US print advertising linage is slowing and there are reports here and there of actual increases as stores start to see more shoppers walk through the doors. So while it is doubtful that publishers are going to increase their editorial hole any time soon, it is possible that increased advertising could lead to a newsprint consumption increase.

Indeed the Pulp and Paper Products Council says that while consumption by US newspapers fell 8.9% in April compared to a year earlier, that was the smallest monthly percentage decline in more than three years. Saving the producers are far higher export volumes to Asia, particularly India, and South America.

Producers are under no illusion, however, that newsprint usage will return to what it was, say, 10 years ago.  “None of us that follow the industry should assume somehow newsprint is going to recover,” AbitibiBowater CEO David Paterson told the Canadian Press. “We believe it will continue to decline and that we have to deal with that decline not by continuing to shut down capacity but by developing new products on those machines.”

But he said that only after more than a year in bankruptcy has allowed him to close down his most expensive operations and switch others to producing more profitable products without all the labor restrictions and severance payments that would have been in place if the company was not in bankruptcy. Since 2007 the company has trimmed annual newsprint production by 36% to 3.6 million metric tonnes with newsprint now accounting for just 38% of total sales compared to 45% in 2007.

AbitibiBowater has filed a plan with Canadian and US bankruptcy courts to exit from court protection before the end of the year, but that might be delayed because shareholders are none too happy that under the plan their shares will be canceled and become worthless. Little wonder the shares on that news dropped 70% in value to all of 11 cents. Shareholders are fighting back, asking the US bankruptcy court to establish an equity committee because they believe they still have some $2.5 billion equity left in the company.

The Conference Board of Canada has given the overall paper sector some encouragement by forecasting that pulp and paper producers as a whole will return to pre-tax profit in 2011 with C$366 million, and that this year’s loss will be only around C$139 million which is great when compared to the whopping C$1.3 billion loss last year.

Newsprint producers are looking for a $25 a tonne US increase in June and if they get it then at least they will £break through the $600 barrier. Still short of where they want to be but as exports increase and US prices continue firming it may well be that the worst is over. At least for this cycle.

See also in ftm Knowledge

The Paper Its Printed On

Newsprint, printing presses and page design are the basic components of the print media. The ftm Knowledge file tells the story. Includes 30 articles. 65 pages PDF (March 2010)

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