By: Debra Garcia
(Due to an error in this week’s E&P Technical newsletter, a link to the article “Smarter Four-Color” by Jim Rosenberg leads to this story. To access this story, click here.)
The slow and steady downturn in North American newsprint markets continued in January, with statistics released today by the Pulp and Paper Products Council (PPPC) indicating negative January numbers for all but inventories.
At the same time, various sources lately indicated further deterioration in newsprint prices. For Feb. 20, FOEX Indexes Ltd. listed its PIX index for 30-lb newsprint in the U.S. at $605.94/ton, off $1.85/ton from the previous week and down $21.81/ton from the beginning of 2007.
Deutsche Bank said in a Feb. 20 report that the official newsprint price fell $10/ton in January, after dropping $35/ton over the last few months. The Feb. 1 U.S. price for 30-lb newsprint was US$630/tonne, down from $640/tonne on Jan. 1 and $660/ton on Dec. 1.
The Reel Time Report’s February issue quoted a January price for 30-lb newsprint of $620/ton, down from the peak of $655/ton last summer. The publication’s forecast is for pricing to move lower throughout 2007.
In a Feb. 6 report, Salman Partners indicated a current newsprint price of $612.93/ton, down almost $31/tonne off the high in early June 2006.
Demand still dropping. Prices are falling in tandem with demand. The PPPC’s recent report did not contain January consumption data due to a delay in receiving the figures from the Newspaper Assn. of America (NAA). However, preliminary total U.S. demand for January was included and indicated a year-over-year drop of 11.4%, to 705,000 ton.
Because the number of Sundays this January totaled four compared to five last January, the recent statistics are not as dire as they appear on the surface. Sources estimate that an additional Sunday tends to boost consumption by 2%-3%, and should be taken into account when comparing data for the two months.
The PPPC also reported that North American newsprint shipments declined 10.8% in January compared to a year earlier, with domestic deliveries posting a 9.6% year-over-year drop and overseas shipments trailing 17.2% behind last January.
In addition to the decrease for both domestic and overseas shipments, North American imports might be further undermining the market, according to FOEX, which reported imports of newsprint from Asia to North America were up toward the end of 2006. However, PPPC data show North American imports from overseas totaled just 7,000 tons in January, a year-over-year decline of 58.1%.
North American newsprint mills produced just over one million tonnes in January, down 4.2% from January 2006, but the operating rate was up 1.0% from last January, to 95%.
Inventories up again. Newsprint inventories for all North American producers totaled 396,000 tonnes at the end of January, an increase of 90,000 tonnes from a month earlier and 65,000 tonnes higher than a year ago, according to the PPPC. Consumer inventories from the NAA were not available at the time these figures were released.
Newsprint market observers were watching for any signs that conditions might improve. However, the early February announcement of the planned merger of Abitibi-Consolidated Inc. and Bowater Inc. did not generate much optimism from industry analysts, who remained focused on the downward trend in demand.
Mark Wilde, paper and forest products industry analyst with Deutsche Bank, is also concerned about the run-up in prices for old newspapers (ONP) in recent weeks, as it will add cost pressures for recycled newsprint manufacturers, such as SP Newsprint Co.
“The market is sloppy and needs a fix,” Wilde noted. “It may come by a ‘merger of equals’ between Bowater and Abitibi. However, we think an even better catalyst would be consolidation among second and third tier players.”
Reaction to merger. Paul Quinn, industry analyst with Salman Partners, was also skeptical about the merger’s benefits. “Our view of the merged company does not measurably change as newsprint prices will continue to head lower, likely at an even faster pace now that this merger has been announced.”
“The best strategy for AbitibiBowater is probably to allow pricing to decline to cash costs for a while to flush out higher-cost competitors,” noted February’s The Reel Time Report.
The weakening of the Canadian dollar, however, has provided some relief for Canadian producers, including Abitibi, Kruger Inc. and Catalyst Paper Corp., as well as Bowater, with 40% of its capacity in Canada, noted Quinn.
Newspapers, though, continue to reduce their reliance on newsprint, and even the future of newspapers could be at risk. Recently, New York Times Publisher Arthur Sulzberger Jr. told an Israeli newspaper that he wouldn’t care if the printed edition stopped publishing in several years, so interested is he in the paper’s future Internet success.
With demand contracting and no further capacity shutdowns announced, at least the near-term outlook for North American newsprint producers seems dour. Sources indicated that newsprint sales are increasingly moving to six-month contracts and prices are being heavily discounted. “Without more capacity rationalization, prices could fall further,” said Wilde.