The PPPC reported that total U.S. newsprint consumption dropped year-over-year by 9.6% in October, bringing the year-to-date total to about 6.5 million tonnes, down 10.3% from a year earlier.
U.S. daily newspapers consumed 11.4% less newsprint this October vs a year ago, bringing the total through the first 10 months to just over 5.2 million tonnes, down 10.1% year-over-year.
North American newsprint production also continues to lag, down 8.6% in October vs a year ago, with the year-to-date total of 9.3 million tonnes off 5.7% from January-October 2007.
However, the picture is not quite as bleak considering that October 2007 had one less Sunday than October 2006, effectively lowering this October's year-over-year comparisons.
Although the North American operating rate was up year-over-year by 1% in October, to 92%, and was flat through the first 10 months, at 94%, much of the improvement was in the U.S. Newsprint mills in Canada ran at just 89% of capacity in October while U.S. mills operated at a rate of 97%.
Mill margins abysmal. The strengthening Canadian currency, combined with diminishing demand, has reached a point where mills cannot operate without a price increase, analysts say.
The strengthening Canadian dollar has caused many mills in Canada to face ?their lowest margins on record,? noted CIBC World Markets in a Nov. 23 report.
Kruger Inc. and Tembec Inc. recently indicated plans to close newsprint machines, joining many other Canadian
companies that had curtailed or permanently idled capacity in recent years as profits have disappeared.
CIBC indicated that more than half of Canadian newsprint capacity is losing money. With U.S. newsprint prices currently at $560/tonne, some operations are not sustainable given that the Canadian dollar is exceeding parity with the U.S. currency.
"Canadian mills represent roughly 60% of the North American capacity and we think that as a result the stronger
Canadian dollar should place some upward pressure on newsprint prices," noted CIBC.
North American newsprint producers attempted to raise prices by $25/tonne in September, but prices instead slipped by $10/tonne. However, a second increase of $25/tonne for November appears to be succeeding, CIBC indicated.
In addition, the newly merged AbitibiBowater Inc. recently announced it would boost newsprint prices by $60/tonne, to be phased in with $20/tonne monthly hikes during first-quarter 2008.
A 30-day review of the consolidated operations of AbitibiBowater, which is expected to be ready by early December, could be a positive influence on the market, especially if it is decided to shutter more newsprint capacity.
"We expect that the pace of falling demand, combined with limited curtailments, will ensure newsprint prices remain near break-even levels until more aggressive supply discipline is introduced into the market,? noted CIBC.
North American newsprint producers have permanently closed 3.7 million tonnes of newsprint capacity since 2000.
During the same period, newsprint consumption fell by 3.1 million tonnes, representing an average drop of 5%/yr.
Demand decline accelerates. This year, that annual consumption decline has increased to 10%, according to CIBC, due to "the slower U.S. economy, intensifying competition from the Internet, falling newspaper circulation, and declining
consumption by newspaper publishers."
October's consumption decline as reported by the PPPC marked the 53rd consecutive monthly drop, according to
CIBC.
Not only are publishers attempting to mitigate their rising costs through various measures to conserve newsprint usage, but less newsprint is required as the size of newspapers shrinks due the loss of advertisers and fewer copies are printed because of reduced circulation.
Salman Partners reported that October ad lineage for Gannett Co. Inc., The McClatchy Co., and Media General Inc., was down 10.4% year-over-year on average. Tribune Co.'s data was not yet available, but ad lineage for all four companies year-to-date was down 8.1% vs about 1% for full-year 2006.
Meanwhile, circulation for Gannett, McClatchy, and Media General dropped 3.5% year-over-year in October, according to Salman Partners.
Export demand improves. While domestic demand continues to decline, North American mills are finding better opportunities in the export market, especially in Europe due to higher European prices and a stronger Euro, noted Salman Partners.
North American newsprint exports were up year-over-year by 29.0% in October and by 11.9% through the first 10 months, to 2.0 million tonnes, PPPC reported.
Western Europe was the most robust market, with shipments there up year-over-year by 53.1% in October and by 66.9% year-to-date. However, more newsprint was shipped to Latin America, which saw a 96.8% jump in October and a 8.1% hike through the first 10 months, compared to a year ago. Shipments to Japan shot up by 44.9% in October vs a year ago, but year-to-date was off 13.1% year-over-year.
Inventories held by both producers and consumers declined in October. North American mill stocks dropped by 54,000 tonnes to reached 391,000 tonnes at month's end, but this was still 24,000 tonnes higher than a year ago.
U.S. dailies inventories stood at 655,000 tonnes at the end of October, down 35,000 tonnes from a month earlier and 115,000 tonnes below a year ago, PPPC reported. Stocks held by all consumers fell 39,000 tonnes during October, to 740,000 tonnes, down 140,000 tonnes from a year earlier.
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