April Newsprint Stats Reflect Weak Market

By: Debbie Garcia (Forestweb.com) It was hard to find anything positive in the April newsprint statistics recently released by the Pulp and Paper Products Council (PPPC). Total North American demand for newsprint dropped 0.9% in April to 937,000 tonnes compared to a year earlier, bringing year-to-date demand to 3.764 million tonnes, up just 0.4% from the same period in 2003.

U.S. demand reached 843,000 tonnes in April, a drop of 0.7% from a year ago, but year-to-date's 3.404 million tonnes was still 0.9% above a year ago. Canadian demand fell 3.2% to 93,000 tonnes for the month and year-to-date was off 4.6% to 361,000 tonnes.

U.S. consumption fell in April both overall and for U.S. dailies. Total U.S. consumption of 866,000 tonnes for the month, was down 0.7% from last April and year-to-date's 3.279 million tonnes was a drop of 2.4% from the same period in 2003. Meanwhile, U.S. dailies' consumption reached 702,000 tonnes in April, a decline of 1.1% from a year ago, bringing year-to-date to 2.675 million tonnes, a drop of 0.9% from a year earlier.

Mark Wilde, analyst with Deutsche Bank, indicated that the April consumption numbers were "not a big surprise ... but a modest disappointment, in light of a March consumption number which was about flat on a normalized basis (adjusting for one fewer Sunday in March 2004 than in March 2003)."

Markets were not bolstered by exports, either. Export demand for North American newsprint fell to 190,000 tonnes in April, down 14.9% from last April, bringing year-to-date exports of 814,000 tonnes to a level just 1.8% above a year ago.

All export markets except Latin America were down, and that region was up just 1.8% in April compared to a year earlier. Every other market was down by double-digit numbers for the month. For year-to-date, Latin American exports of 241,000 tonnes still remained 15.4% above a year ago, while all other export markets' year-to-date numbers were down, with Western Europe showing the steepest drop at -16.2%, while Japan was off 5.7% and Asia (except Japan) was down 1.6%.

Sluggish conditions were reflected in North American mill production of newsprint, which was down 1.6% to 1.128 million tonnes in April compared to last year and off 1.2% for year-to-date (4.519 million tonnes). Canadian production fell 3.7% to 689,000 tonnes for April compared to a year ago and year-to-date was down 3.5% to 2.778 million tonnes. U.S. production was still ahead of a year ago, with April's production of 439,000 tonnes up 1.8% from a year ago and year-to-date production of 1.742 million tonnes was up 2.7% from a year ago.

Operating rates were higher in Canada, though. Canadian mills ran at 92% of capacity for both April and year-to-date compared to 93% last April and 94% through the first four months of 2003. The Canadian operating rate was also 1% lower than in the previous month. U.S. mills operated at 89% in April, but this was up from 85% the previous April, and the year-to-date operating rate of 88% was ahead of 86% for the same period a year earlier. The U.S. operating rate was also 4% higher than a month earlier. The total North American operating rate was flat at 90%. The PPPC said that the North American operating rate would be 97% if the indefinitely idled capacity, which totals 945,000 tonnes on an annual basis or a little more than 6% of North American newsprint capacity, were taken into account.

North American mill inventories rose in April by 17,000 tonnes to 304,000 tonnes. Chip Dillon, analyst with Smith Barney, indicated that this was slightly less than the average 20,000 tonne hike in April mill inventories. Canadian mill inventories showed the biggest gain, increasing by 18,000 tonnes while U.S. mill inventories actually lost 1,000 tonnes. The PPPC said that, at their current level, mill stocks remained 27% (or 111,000 tonnes) below the historical average.

Consumer inventories showed a different pattern, falling sharply. All U.S. users' inventories reached 1.213 million tonnes at the end of April, declining by 23,000 tonnes from a month earlier, while U.S. dailies' inventories of 963,000 tonnes was down 22,000 tonnes. Consumer stocks in both cases were up 102,000 tonnes from a year earlier. Days of supply for April was 45 for all U.S. users and 44 days for U.S. dailies. In both cases, the increase was 1 day compared to a month earlier and 4 days compared to a year earlier.

Newsprint customers probably have higher inventories than a year ago as a hedge against supply disruptions should a long strike be called in eastern Canada this summer; however, they appear now to have started working them down gradually. When the current labor agreement was ratified six years ago, it followed a five and one-half month work stoppage, which affected Abitibi-Consolidated Inc. mills and disrupted newsprint supplies.

However, labor negotiations between the Communications, Energy and Paperworkers of Canada (CEP) and Abitibi appeared to be making progress as the two sides met for 15 days in May. Even though the union decided to recess the talks recently to take a strike vote, both Abitibi and the CEP said this week that they expected negotiations to resume sometime after the votes are tallied on June 7, and are hopeful of reaching a settlement without a strike.

Newsprint Prices Dropping?

Dillon projects that newsprint markets will continue to "face secular challenges of slipping North American demand and gradually declining exports (as overseas demand is gradually supplied indigenously)."

While the FOEX index during May rose steadily for U.S. newsprint, with more than $5/tonne gains weekly for the first half, recent reports indicated that prices might be slipping. For the week of May 24, FOEX reported U.S. newsprint prices gained by just 5 cents/tonne to $535.89/tonne. At the same time, analysts reported that producers might be backpedaling on the hike.

"We learned today that Abitibi has retreated on the hike from $50/tonne to $35/tonne," said Wilde in a report this week. "With Abitibi taking a softer stance on pricing, Bowater may be forced to follow suit. He noted that, while "there is talk about another price initiative for late summer/early autumn," its success is unlikely unless there is a "sustained improvement in demand." On the positive side, Wilde projects that newsprint consumption will "break positive over the next 3-4 months."

Meanwhile, the Newspaper Association of America (NAA) earlier this month reported that newspapers continued to suffer from circulation problems, even as advertising linage improves. Figures from the Audit Bureau of Circulations (ABC) for the six-month period ending March 2004 showed that half of the largest 38 newspapers in the U.S. reported weekday circulation declines, according to an NAA analysis.

Delving further into the figures, the NAA indicated that eight of the 12 biggest newspapers showed an overall daily circulation gain of 3.2%, but if you subtract two papers' huge year-over-year gains (The Wall Street Journal and the New York Post), the results show that metro papers' circulation results are "flat at best." It should also be noted that the Journal's gains were entirely attributable to its paid online subscriptions.

Average daily circulation of the 836 newspapers reporting to the ABC declined 0.1%, according to the NAA analysis. Only 37% of those newspapers reported circulation gains during the period. In addition, most of the gainers picked up only a little, while the losers lost a lot.