Labor Strike Could Hit Newsprint Industry

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By: Jennifer Saba

Six years ago, the newsprint industry ? beset by the whims of a volatile market ? had an epiphany: In order to steady itself, it would extend labor contracts to its workers. “It was a breakthrough when it was signed,” says Bernie Bottomley, president of Bottomley & Associates, a newsprint consultancy in Breckinridge, Colo. “It put the paper industry on more sure footing, and it gave the operators stability that were desperately looking for.”

Cut to this spring, and labor is getting restless. The Communications, Energy and Paperworkers Union of Canada is doing a shakeup of its own and the target is Abitibi, the world’s largest producer of newsprint.

The union’s contract expired on April 30, and by May talks toward renewal had all but broken down. In June, 95% of the union’s 4,500 workers at 13 Abitibi paper mills voted to strike if it becomes necessary.

The last time the industry went through a strike ? in 1997 with Fletcher Challenge, now part of NorskeCanada, and again in 1998 with Abitibi ? it impacted prices, says Andrew Battista, a senior economist with RISI/Paperloop in Charlottesville, Va. Newsprint became scarce, and the mills were operating at full capacity. On average, prices rose from just over $500/ton in 1997 to almost $600 in 1998. There were other factors driving price, “but the labor dispute played an important role,” Battista says.

Industry watchers note that the paper industry is weak, and the union knows this. But that softness also means the union has to be realistic in its wants. There isn’t “a lot of money available to fund new opportunities for the union to increase wages and benefits,” Bottomley says.

Still, a threat’s a threat. And if workers strike, it will affect production, which affects supply, which affects price.

The industry just went through price negotiations on a proposed increase of $50/ton (which it made back in February). Under pressure from buyers, the paper suppliers backed down to a $35/ton increase. The range currently spans from $500 to $550/ton on delivered price.

Now the paper mills are gunning for another hike, and a strike would only hasten it. “If it happens,” explains Battista, “a strike would immediately tighten up the newsprint market. Another price increase ? probably another $50/ton ? would likely follow, with implementation taking place in early autumn.” Delivered average cost could top $600/ton by the end of the year.

The paper industry is currently limping along. Any gains made during the last two years have been lost because of the exchange rate as Canadian paper mills, which account for 60% of North American capacity, sell on the U.S. dollar. “Real revenue and profit decreased by 20%, just by the exchange rate,” says Bottomley about the strength of the Canadian dollar. It would seem that newspapers can expect a price hike in the fall, regardless of the labor negotiations.

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