By: Debra Garcia
Although U.S. newsprint prices have been falling for three consecutive months, the rate of consumption decline by U.S. daily newspapers was lower in November than the previous month, one of the few relatively positive signs in awhile.
U.S. newsprint prices began to weaken in August, when a $40/tonne increase, later scaled back to $20/tonne, was to have taken effect but didn’t. Instead, pressure on prices led to a $5/tonne drop in each of the succeeding months.
According to Chip Dillon, industry analyst for Citigroup Global Markets, the price for 30-lb newsprint in the U.S. dropped $15/tonne since September, to $660/tonne currently.
He indicated this level was “roughly the same level as those seen in Europe and Asia,” and predicted stable-to-rising prices in most regions in the coming months due to tightness in global newsprint markets.”
However, U.S. newsprint market conditions are far from tight. Statistics released today by the Pulp and Paper Products Council (PPPC) indicate that U.S. daily newspapers consumption of newsprint fell 7.7% year-over-year in November, bringing the year-to-date total to 6.4 million tonnes, down 7.9% from January-November 2005.
Still, the November consumption drop was lower than the previous month’s 9.0% year-over-year drop, leading some to believe the downward trend might be easing.
“It appears that the rate of newsprint consumption decline in the U.S. has stabilized, and we believe that this rate may actually improve in 2007,” said Dillon, noting that most “cost-cutting measures” have already been implemented by U.S. daily newspapers.
Total U.S. consumption, which includes commercial printers, was down 7.4% year-over-year in November, bringing the total year-to-date to just over 8.0 million tonnes, down 6.7% from the same 11-month period in 2005, the PPPC reported.
Inventories appear under control. Another relatively good sign that the market might be stabilizing is inventories. Both consumer and mill newsprint stocks declined in November, dropping a total of 41,000 tonnes, which is roughly in line with the 10-year average of 54,000 tonnes, according to Dillon.
U.S. daily newspapers reduced inventories by 13,000 tonnes in November, to a level 35,000 tonnes below a year earlier, while North American newsprint mills trimmed their stocks by 22,000 tonnes, still 11,000 tonnes higher than a year ago.
In terms of days of supply, U.S. dailies had 41 days of newsprint on hand at the end of November, posting no change from a month earlier and one day higher than a year ago. All U.S. users stocks totaled 38 days of supply, up one day from both a month earlier and a year ago.
North American mills produced 5.8% less newsprint in November 2006 than last November, and through the first 11 months newsprint output reached nearly 10.9 million tonnes, down 6.6% year-over-year.
Canadian newsprint mills produced 6.5 million tonnes during January-November 2006, down 8.4% year-over-year, while U.S. newsprint output during the same period totaled 4.3 million tonnes, down 3.9% from a year earlier.
The operating rate for North America newsprint mills was 94% for both November and year-to-date. This was down 2% from last November and down 1% from the January-November 2005 operating rate, according to PPPC data.
Again, U.S. mills fared better than their counterparts in Canada, with the U.S. operating rate for November at 96% vs 95% a year earlier. Canadian newsprint mills ran at just 92% of capacity in November vs 97% a year ago. Through the first 11 months, U.S. mills operated at 96% compared to 93% for Canadian mills.
Exports flatten out, some markets up. North American newsprint exports leveled off in November, totaling 192,000 tonnes, up just 0.1% from a year earlier. During January-November 2006, though, overseas shipments are down 12.6% year-over-year, to just over 2.0 million tonnes, the PPPC reported.
All markets except Latin America have fallen year-over-year through the first 11 months of 2006. Latin America has grown 13.2% during that time, while Western Europe is down 40.3%, Japan is off 33.7%, and non-Japan Asia fell 10.7%.
For November, both Latin America (up 18.9%) and non-Japan Asia (up 3.1%) showed increases year-over-year, but Western Europe (down 16.2%) and Japan (down 35.6%) continued to decline. North American mills shipped a total of nearly 1.0 million tonnes of newsprint to all markets in November, down 5.8% from a year ago. This brought the year-to-date total shipments to just over 10.8 million tonnes, down 6.9% year-over-year.
Newsprint imports have not been a problem for the North American market, however. November imports were off 11.8% year-over-year, bringing the year-to-date total to 138,000 tonnes, down 20.8% from a year ago.
According to Dillon, imports account for under 2% of North American newsprint consumption. Moreover, he expects that additional newsprint capacity coming online in China in 2007 will be assimilated into the global marketplace in time to permit some improvement in newsprint prices by mid-year.
However, Verle Sutton, editor of The Reel Time Report, predicts a slow decline in U.S. newsprint prices next year. His 2007 forecast calls for 30-lb newsprint prices to fall to $610/tonne in first quarter, $570/tonne in second quarter, $550/tonne in third quarter, and $540/tonne in fourth quarter.
Sutton indicates that prices will drop below “cash-costs for the most inefficient one million tonnes over the next two years,” estimating that the cash-cost level is about C$614/tonne. Although he conceded that this cash-cost estimate is low, the rationale is that “in such situations, prices tend to drop more than is commonly expected.”