By: James McLaren, special from Forestweb
(Forestweb) Despite the lowest newspaper publisher inventories in eight years, and continued low operating rates at mills, newsprint remains a big disappointment, analysts noted last week as trade statistics and market conditions showed negatives continuing through the second quarter.
April newsprint prices were worse than earlier thought — dropping a total of $20/tonne from March to $430/tonne, and May levels are expected to go down further, according to Reel Time Report newsletter. Current levels are at 10-year lows and down 32% from April 2001.
“Prices have fallen a bit more than we anticipated, given that prices were already at cash costs,” said Goldman Sachs forest products analyst Mark Weintraub.
North American newsprint production plunged 13.1% in March from a year earlier as the U.S. sector appeared to grind to a halt — operating at just 77% of capacity — according to statistics released last week by the Pulp and Paper Products Council (PPPC).
In discussing the company’s first quarter financial results, global newsprint giant Abitibi-Consolidated Inc. CEO John Weaver acknowledged the drop in prices but said they will start to pick up again in the second half of the year. He said there are signs from Abitibi’s customers that advertising is slowly recovering. The company announced a higher-than-forecast first-quarter loss of $32 million.
But indicators show conditions could erode further before a recovery begins. “Newsprint appears to be one of few areas in the industry where prices are still falling and are moving all the way back down to prior cycle lows despite all of the consolidation of the past five years and all of the bold talk by producers about matching production and supply to demand,” Morgan Stanley Dean Witter analyst Matt Berler said last week.
Indicating even more gloom ahead for producers, Berler said prices will only bounce after they get low enough to force producers to shut down more capacity.
Independent newsprint industry analyst Dave Allan noted that so far only the market leaders Abitibi-Consolidated, Bowater, and Norske Canada are taking a significant amount of downtime. The low U.S. operating rate of 77% was driven by shutdowns at Abitibi’s mills in Texas. Other significant shuts include Bowater at Coosa Pines, Ala., and Enron Inc.’s idled mill in New Jersey.
North American producers took 1.383 million tons of downtime last year, said a report by Deutsche Banc Alex Brown analyst Mark Wilde, led chiefly by the top three. So far this year, companies have cut 460,000 tons of output, the vast amount again accounted for by Abitibi and Norske Skog. Abitibi said last week it will take further downtime at its Kenora, Ontario, mill.
U.S. newsprint output in March was down 23.3% to 394,000 tonnes while Canadian output was down 6.1% from last year to 704,000 tonnes, PPPC reported. Year to date, U.S. newsprint production is down 18.3% to 1.280 million tonnes and Canada is lower by 9.8% to 2.037 million tonnes.
Total inventories among mills and users declined 22,000 tonnes from February to March, PPPC reported, vs. a 10-year average increase of 38,000 tonnes.
Mill inventories declined 9,000 tonnes in March from February, due mostly to a drop at U.S. mills. But at 486,000 tonnes, mill stocks were 21% higher than a year ago.
U.S. newsprint demand in March was 6.0% lower than a year ago to 825,000 tonnes.
Year to date through the first quarter, North American newsprint production is down 13.3% to 3.318 million tones and demand is off 12.4% to 2.700 million tonnes, PPPC reported.
Total Canada-U.S. newsprint shipments in March were down 10.4% from a year earlier, with business to the U.S. market down 6.3%, Latin America down 40.9%, Japan down 25.1%, and other Asia off 23.4%. But the bulk of exports — shipments to Western Europe — rose 24.5% from last year to 75,000 tonnes in March.
(Complete newsprint statistics below)
NORTH AMERICAN NEWSPRINT STATISTICS
|March||% change||Year-to-date||% change|
|Source: Pulp and Paper Products Council, Montreal. From Forestweb.|