By: Debra Garcia
As North American daily newspapers steadily reduce their consumption of newsprint, price hikes appear to have come to a standstill. The Aug. 1 increase of $20/tonne on 30 lb newsprint in the U.S. did not succeed, and demand continues to decline.
U.S. dailies consumed 8.9% less newsprint in September than a year earlier and the 5.2 million tonnes consumed through the first three quarters is 7.8% below the same period in 2005, according to the latest statistics from the Pulp and Paper Products Council (PPPC).
This is not quite as dismal as it appears, however, since the average basis weight of the newsprint is also lower, resulting in the actual area of newsprint consumed declining by a lesser amount than the tonnage used. However, the drop still represents a warning for producers that newsprint capacity might be getting too high to match the level of orders.
It appears that the balance between supply and demand might be tipping toward the buyers based on the pressure on newsprint prices in recent months, as well as other evidence. Some market observers indicate that prices have dropped and could continue sliding; others expect a leveling off for awhile.
In the October 2006 issue of The Reel Time Report, 30 lb newsprint in the U.S. is listed at $655/tonne for September, a price that has remained the same since April. Verle Sutton, editor, indicated that more capacity will have to be removed in the near future for pricing to be maintained or even improved. “Something had better happen soon, you can feel the balance of power shifting,” he noted.
“The North American newsprint statistics for September continue to point to an impending disaster for producers as the drop in consumption accelerates and pricing power sways to more of a buyers’ market,” wrote Paul Quinn, analyst with Salman Partners, in an Oct. 23 analysis.
Mark Wilde, analyst with Deutsche Bank, indicated in an Oct. 23 report that 30 lb newsprint had declined $5/tonne to $670/tonne in October, and called the market “sloppy.” He attributed the decline not only to falling domestic demand, but reduced exports.
Export decline remains a concern. PPPC reports that total North American newsprint shipments to overseas markets fell 16.3% year-over-year in September, bringing the year-to-date total to 1.65 million tonnes, down 14.1% from a year earlier.
The only overseas market that remains buoyant is Latin America, with September shipments up 5.8% and January-September shipments up 16.1%, both compared to a year earlier. The other major markets all declined in September, and shipments through the first three quarters of 2006 vs 2005 are sharply lower for Western Europe (down 43.8%), Japan (down 33.8%), and non-Japan Asia (down 14.1%).
North American newsprint shipments totaled 941,000 tonnes in September and nearly 8.9 million tonnes through the first nine months of 2006–down 11.0% and 7.0%, respectively, compared to a year earlier.
Operating rates were flat compared to a year ago, with North American mills operating at 94% in September and 95% year-to-date. North American newsprint production fell year-over-year by 5.8% in September, bringing the year-to-date total to 8.9 million tonnes, down 6.4% from a year ago.
U.S. newsprint manufacturers continued to operate at higher rates and production declined far less than for Canadian mills. U.S. mills ran at 96% of capacity in both September and through the first nine months of 2006, up from 93% last October and 95% for the first three quarter of 2005.
U.S. newsprint output in September was just 1.1% lower than a year earlier, while Canadian mills produced 8.7% less for the same period. On a year-to-date basis, U.S. mill production of 3.5 million tonnes is down 3.7% vs a drop of 8.1% for the nearly 5.4 million tonnes produced in Canada.
Total U.S. consumption, which includes commercial printers, is slightly ahead of consumption by U.S. daily newspapers. In September, it was 8.6% lower than a year earlier, while the more than 6.5 million tonnes year-to-date total is down year-over-year by 6.3%.
With the number of Sundays the same year over year for both September and the first three quarters of this year, the data is directly comparable with 2005. More newsprint is consumed on Sundays due to bulkier papers that day.
Newspaper circulation, ads down. Publishers themselves are suffering from the effects of declining circulation and reduced advertising lineage. September newsprint ad lineage from the top five U.S. publishers fell 4.9% year-over-year, according to Salman Partners. Year-to-date, the decline is 0.6%. Newspaper circulation as measured by Gannett Co. Inc. and The McClatchy Company dropped a combined 4.1% weighted average in September vs a year earlier, and was down year-over-year by a weighted average of 2.7% through the first nine months of 2006.
Imports are another threat for North American producers, though the effect is not expected to be significant until next year, when newsprint from China should begin to make a dent in total North American newsprint sales. “There is no evidence yet that offshore newsprint imports have begun to increase, but growth in 2007 is a high probability,” noted Sutton.
Overseas imports into North America are actually down this year, dropping year-over-year by 10% in September, and off 19.1% through the first three quarters of 2006, according to the PPPC.
Mill stocks for overseas shipments have been declining and at the end of September were 7,000 tonnes lower than a year ago, although they grew by 1,000 tonnes during the month. Total North American producer inventories reached 309,000 tonnes at the end of September, up 7,000 tonnes from a month earlier and 32,000 tonnes higher than a year earlier.
Consumer inventories, however, are dropping. U.S. dailies held 868,000 tonnes of newsprint at the end of September, a decline of 46,000 tonnes from a month earlier and down 62,000 tonnes from a year earlier. All U.S. user inventories totaled just over one million tonnes at the end of September, down 40,000 tonnes from the end of August and 78,000 tonnes lower than last September, the PPPC reported.
Total inventories (mills plus consumers), however, dropped 33,000 tonnes month-to-month, to 1.27 million tonnes at the end of September. Compared to a year ago, this was 46,000 tonnes lower.
With mill inventories growing and consumer stocks contracting, though, buyers appear to be in a better position to fend off price hikes and appear to be doing just that, as indicated by the failure of the August 1 hike.
While reducing capacity even further appears to be necessary to keep markets tight, another machine is being restarted soon. Stora Enso Port Hawkesbury Ltd. intends to bring its 195,000 tonnes/year newsprint machine back onstream later this year. However, Bowater Inc. recently announced that it would keep the No. 4 newsprint machine at its Thunder Bay, Ont., mill down indefinitely.
“Without additional newsprint capacity closures, newsprint prices will continue their downward slide,” said Quinn, pointing out that the restart of the Port Hawkesbury newsprint machine “makes the need even greater.”