FORESTWEB REPORT: No Let-up in North American Newsprint Consumption Decline

By: Debra Garcia The North American newsprint market continued to deteriorate in March. Consumers still have the upper hand, as newsprint mills have been unable to slow the pace of production to match the rate of decline in orders.

The Pulp and Paper Products Council (PPPC) reported last week that North American newsprint mills ran at 72%, the lowest rate on record, according to an April 24 report from RBC Capital Markets.

Through the first quarter, the North American operating rate was just 74%. Due to the Canadian dollar weakening, Canadian newsprint producers ran at 77% in March versus just 65% for mills in the United States. Year-to-date, the Canadian operating rate was 77% and the U.S. rate was 71%.

North American newsprint production in March was down 23.7% from a year earlier, bringing the total through the first three months to 2.007 million tonnes, which was 22.9% below first-quarter 2008.

Newsprint shipments from North American mills fell year-over-year by 28.2% in March and 31.2% year-to-date (1.798 million tonnes). Despite this reduced output, mill inventories grew by 49,000 tonnes, to 528,000 tonnes at the end of March, and this was 178,000 tonnes higher than a year earlier, PPPC reported.

In March, Canadian stocks were up 32,000 tonnes, to 375,000 tonnes, which was 77,000 tonnes higher than a year ago, while U.S. inventories grew by 17,000 tonnes, to 153,000 tonnes, which was 101,000 tonnes more than the inventory level at the end of last March.

Newsprint production in Canada was down less sharply than it was in the U.S. In March, output for Canadian mills fell 20.1% and it was off 29.0% for U.S. mills, both compared to a year ago. Through the first quarter, Canadian newsprint mills made 1.21 million tonnes of newsprint, and this was 20.4% below a year earlier, while U.S. newsprint production was off 26.4% year-over-year, to 797,000 tonnes.

Prices keep dropping
The substantial capacity reductions announced by AbitibiBowater Inc. last December have not kept pace with the rapid decline in orders that was exacerbated by the deterioration in the economy. This has caused
prices to decline about $25-$30/tonne in each month during first-quarter 2009, according to the April issue of The Reel
Time Report.

The publication projected that prices will fall in the second quarter by $20-$30/tonne, ?unless massive capacity reductions occur due to an Eastern Canadian strike or bankruptcies. Whether or not the unions will target AbitibiBowater for the pattern bargaining agreement this year remains to be seen but appears unlikely considering the company?s financial situation.

The company?s bankruptcy also ?muddies the waters? in other ways, as it will delay much needed capacity closures, according to RBC Capital Markets. ?We expect other producers will also hold off on their own permanent closures as long as they can, waiting to see the size and configuration of a new, recapitalized AbitibiBowater,? it was noted.

More capacity will have to be shut down, however, if the newsprint industry is to firm up markets, as demand continues to decline at a rapid rate.

In March, total U.S. demand for newsprint fell year-over-year by more than one-third (36.6%) and year-to-date (1.231 million tonnes) is down 34.1% versus a year ago. Consumption by U.S. daily newspapers dropped 26.9% in March compared to last March and was down 25.2%
year-over-year in the first quarter (1.043 million tonnes).

Total U.S. consumption in March was down slightly more than U.S. dailies? consumption, falling by 28.5%, bringing the total through the first three months to 1.324 million tonnes, which is off 25.5% year-over-year, according to the PPPC.

There were same number of Sundays in March and the first quarter of both 2009 and 2008, making the comparisons straightforward.

Some positive signs
In early April, there was some evidence that lower prices for newsprint had boosted orders from commercial printers, according to The Reel Time Report, which also expects there could be some migration to newsprint from high-bright mechanical grades as prices for newsprint have fallen more rapidly than for high-bright.

Prices for 30-lb. newsprint in the U.S. currently are about $665/tonne, according to various reports. The Reel Time Report, however, listed that level as its March price. FOEX Indexes Ltd. earlier this week indicated a benchmark price of $669.93/tonne, which was down $3.91/tonne from the previous week.

RBC Capital Markets said that the east-west price gap in the U.S. narrowed in April to $10/tonne from $45/tonne at its peak in March.

As newsprint consumption has fallen, consumers have been able to whittle down their inventories. This trend continued in March, with stocks of all U.S. users down 32,000 tonnes, ending the month at 679,000 tonnes, which was 120,000 tonnes below a year ago.

U.S. dailies reduced their inventories by 13,000 tonnes in March, to 626,000 tonnes at month?s end, and this was 71,000 tonnes lower than a year ago, PPPC reported.

Total North American newsprint shipments in March fell 28.2%, bringing the total through the first three months to 1.798 million tones, which was down 31.2% from first-quarter 2008.

Domestic North American newsprint shipments dropped 33.4% in March versus last March and were down 32.4% year-to-date (1.405 million tonnes) compared to a year ago.

Export decline easing?
Overseas shipments, however, fell less sharply in March, down a relatively moderate 6.8% year-over-year, but the year-to-date total of 394,000 tonnes was still off a steep 26.6% versus first-quarter 2008.

All overseas markets were down in March, except for Western Europe (up 43.9%). Year-to-date, deliveries to Western Europe dropped just 6.0% compared to sharp declines for Latin America (off 26.1%), Japan (off 43.2%) and non-Japan Asia (off 46.9%).

Compared to a year ago, Canadian newsprint shipments dropped in March by 23.7% and were down 30.1% year-to-date (1.072 million tonnes), while U.S. newsprint shipments fell 34.6% in March and were off 32.9% in the first quarter (727,000 tonnes).

Both countries saw sharp year-over-year declines in domestic deliveries in March, with Canada off 31.4% and the U.S. down 35.7%; however, overseas shipments for Canada were down just 1.3% while the U.S. plunged 24.8% due to the stronger U.S. currency.

For the first quarter, newsprint exports from Canada were off 23.7%, to 317,000 tonnes, and the U.S. was down 36.5%, to 77,000 tonnes, both compared to a year ago. Domestic deliveries year-to-date versus a year ago fell about the same in both countries, with Canada off 32.5%, to 755,000 tonnes and the U.S. down 32.4%, to 650,000 tonnes.

Newsprint imports into North America remain insignificant, with just 18,000 tonnes shipped to the U.S. in the first quarter and none to Canada. The total to North America (18,000 tonnes) was down 11.2% from a year ago, PPPC reported.