Newsprint Costs Should Remain Stable

By: Lucia Moses

The price of newsprint will likely remain flat, or even decline, over the next few months, but how long will that last?

Producers have hacked big chunks out of supply by taking downtime and closing mills permanently, a trend expected to continue into the second quarter of this year. Tightening supply didn’t help producers last year, when they stood by helplessly as prices tumbled. But once demand picks up, with the economic recovery, publishers may worry that those constraints could lead producers to seek aggressive price hikes this year and next.

A sharp uptick in prices seems unlikely, however, for a number of reasons. While an advertising recovery is in the forecast for the second half, it’s expected to be muted, which will limit a turnaround in demand for newsprint.

Indeed, Merrill Lynch forecasts the average annual price per metric ton falling 10% to 15% this year, based on newspaper ad revenue declining as much as 2%. As newsprint consultant Bernard Bottomley said, “We really need to see some signs of a stop in the hemorrhaging,” before producers can succeed with a boost.

Producers will want to raise prices at the first sign of a turnaround, but know full well publishers will cut their consumption if they move too fast, notes Peter Maier, veteran newsprint salesman and co-founder of the Newsprint Buyers Consortium. Publishers’ recent fear that paper prices would increase as much as $150 per ton over a year’s time “simply isn’t going to happen,” he said.

Another force that will keep prices in check is planned increases in higher-grade paper production, explained Verle Sutton, editor and publisher of paper industry newsletter “The Reel Time Report.” The price of the higher-grade paper should remain close to newsprint for the next few years, he said, which will invite some newsprint buyers other than newspapers to upgrade, thereby offsetting demand for newsprint.

Producers could use some relief after last year, when publishers’ pain became their own. Consumption declined 10.9% as papers slashed page counts, reined in circulation, continued their conversion to narrower page widths, and saw their ad revenue tumble surprisingly fast. Despite cutbacks in production, the price of paper fell 16.5%.

If a strong turnaround in the economy occurs (which seems a way off), publishers could see paper prices increase by as much as $50 a ton from $450 today. Prices could push $575 by the end of 2003, Sutton said.

In any case, the extent of supply tightening to date suggests that consolidation is paying off for papermakers. Said Bottomley: “The pure scale of them has contributed to their ability to make these sorts of decisions.”

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