By: Debra Garcia
February newsprint statistics released Mar. 22 by the Pulp and Paper Products Council (PPPC) indicated a sharper drop in U.S. newsprint consumption than in the preceding two months, but various market factors could lead to an upturn later in the year, according to one industry analyst.
One of the variables is a fast run-up in prices for old newspapers (ONP) in recent weeks. This added to the change in outlook for North American newsprint producers because of their reliance mostly on virgin pulp for their furnish, whereas the rest of the world produces primarily recycled-content newsprint.
“Based on relatively firm global markets and this jump in ONP costs, we see U.S. newsprint prices ‘bottoming’ (if that’s what we should call it given the relatively slight recent correction) this spring and then rising starting in about June,” noted Chip Dillon, paper and forest products analyst with Citigroup, in a Mar. 23 report.
Last month, though, newsprint consumption weakened at an increasing rate. Total U.S. consumption fell 13.7% year-over-year in February vs. a year ago, and both months had equal number of Sundays. This represented a sharp drop in the rate, which had been a 6.3% consumption decline for all of 2006, based on PPPC data. For U.S. dailies, the consumption rate in February was 9.4% vs. 7.1% for full-year 2006.
“Given the slowing North American economy and changing consumer preferences, we do not see any reason for a short-term reversal in these negative consumption figures,” said Paul Quinn, paper and forest products analyst with Salman Partners, in a Mar. 22 report.
The bright spot in the PPPC’s numbers was for North American newsprint exports, which increased 10.1% in February vs a year earlier. This included improved shipments to Western Europe (up 87.3%) and Japan (up 46.1%).
With U.S. newsprint prices steadily dropping since last summer, they are now below levels seen in Europe and in parts of Asia, noted Dillon. “Given tightness in global newsprint markets and rising ONP costs (mainly affecting non-North American producers), we see stable-to-rising prices in most regions in coming months.”
Citigroup projects that North American newsprint prices will start to improve by the end of 2007, as last year’s capacity additions in China are absorbed by the global market. In addition, global newsprint demand is expected to grow by close to 2% vs approximately 1% in 2006. Projections were adjusted on Feb. 22 and now call for 2008 U.S. newsprint prices to reach $700/tonne from the previous forecast of $645/tonne.
In the March issue of The Reel Time Report, 30-lb newsprint in the U.S. dropped another $10/tonne in February, to $610/tonne vs $620/tonne in January. Transaction levels have fallen steadily since last September, when they reached a high of $655/tonne.
FOEX Indexes Ltd.’s Mar. 20 report indicates that 30-lb newsprint dropped just 17 cents last week, to $604.42/tonne. The last high point for this index was June 6, 2006, when it topped out at $643.88/tonne; it has since fallen by 6.1%, or $39.46/tonne.
North American newsprint capacity now exceeds orders, resulting in a declining market. Salman Partners indicated that the majority of newsprint producers are waiting to see what will happen after the merger of Abitibi-Consolidated Inc. with Bowater Inc. later this year before making any decisions on shutdowns.
However, recently Blue Heron Paper Co. announced it would indefinitely idle its 140,000 tonnes/year 100% recycled newsprint mill in Pomona, Calif., due to high wastepaper and energy costs and declining newsprint consumption. The shutdown is slated to begin about May 6.
Prior to that, Abitibi’s 145,000 tonnes/year Fort William newsprint mill in Thunder Bay, Ont., was closed Feb. 25 for an indefinite period. Although the production is mostly 65 and 70 hi-bright newsprint, it is expected to be reported as newsprint, according to The Reel Time Report.
U.S. daily newspapers continued to trim their inventories in February, reducing levels by 8,000 tonnes and ending the month with 802,000 tonnes, the PPPC reported. All U.S. users inventories dropped 1,000 tonnes, to 879,000 tonnes. Compared to a year ago, U.S. dailies had 52,000 tonnes less in inventory and all U.S. users stocks were down 94,000 tonnes.
North American newsprint producers, however, experienced a 67,000-tonne growth in inventories during February, to 460,000 tonnes, up 104,000 tonnes from a year earlier. North American newsprint production reached 905,000 tonnes in February, a drop of 4.2% from a year earlier. This brought the year-to-date total to 1.9 million tonnes produced, down 4.3% from January-February 2006.
According to the American Forest & Paper Assn., U.S. newsprint capacity has dropped from an all-time high of 6.77 million tonnes in 2000, to 5.02 million tonnes in 2006, a reduction of 26.0% for the six-year period. It is expected to fall a further 0.7% in 2007 due to a machine conversion to printing and writing papers, drop another 3.1% in 2008 due mainly to grade shifts into uncoated mechanical grades, and then stabilize in 2009. Basis weight reductions are also contributing to the decline.
However, Dillon sees some bright spots ahead. He expects newspapers will stop “nickel-and-diming” readers in 2007 and focus more on retaining circulation, resulting in the decline in consumption moderating. However, this does not appear to be happening yet.
Recent figures from Gannett Co. Inc. and The McClatchy Co. show that average paid circulation declined 2.4% in February vs a year ago, according to Salman Partners. This, combined with a 6.8% year-over-year drop in newspaper ad lineage during February, has a large impact on profitability, noted Quinn.