FORESTWEB Report: Total U.S. Demand for Newsprint Down 20.2% Year-Over-Year

By: Debra Garcia While the newsprint industry is getting some relief from lower costs for fiber, energy and transportation, substantial downtime has been required to keep up with falling demand.

Statistics by the Pulp and Paper Products Council (PPPC) released at the end of November show that total U.S. demand for newsprint dropped 20.2% year-over-year in October (527,000 tonnes), bringing the year-to-date demand to 5.75 million tonnes -- which is down 10.8% from the same 10-month period in 2007.

Total U.S. consumption is faring better than consumption by U.S. daily newspapers, but not by much. In October, total U.S. consumption (570,000 tonnes) fell 18.2% while U.S. dailies' consumption dropped 18.3%, both compared to last October.

Through the first 10 months of 2008 vs a year ago, total U.S. consumption (5.691 million tonnes) was off 13.0% vs a drop of 15.2% for consumption by U.S. dailies (4.45 million tonnes), PPPC reported.

AbitibiBowater Inc., expecting consumption to continue to decline, plans to cut capacity in 2009 by taking 50,000 tonnes of newsprint downtime monthly next year, CIBC World Markets indicated in a Nov. 17 report.

?We expect AbitibiBowater's rolling production curtailments will support the implementation of about $45/tonne of the announced $60/tonne fourth-quarter price increase,? according to the Nov. 25 report from RBC Capital Markets.

Catalyst Paper Corp., meanwhile, has been shifting some production away from newsprint to uncoated groundwood papers, according to a Nov. 7 Salman Partners report.

Price hikes easing. Salman Partners also indicated that Catalyst and other western-based newsprint producers did not implement the October $20/tonne price hike but notified customers that it would stick to previously planned $20/tonne increases in both November and December.

Likewise, Deutsche Bank reported Nov. 24 that West Coast newsprint prices were unchanged this month, but East Coast producers managed a $10/tonne hike.

Canadian producers, which comprise 57% of North American newsprint output, have had more ?wiggle? room in pricing as the Canadian dollar has dropped, in addition to lower input costs.

With a $10/tonne hike in November, Deutsche Bank puts the price for 30-lb newsprint in the U.S. currently at $775/tonne, according to the securities firm's Nov. 24 report.

RBC Capital Markets has the same $775/tonne list price for November in U.S. eastern markets, and notes that the spread between U.S East and U.S. West prices should limit future pricing gains.

The Reel Time Report's November issue noted that pricing advanced more in the eastern U.S. than in the West this fall. For October, the publication puts 30-lb. newsprint in the U.S. at $730/tonne and forecasts this as the price for the fourth quarter.

FOEX Indexes Ltd. reported that the monthly average of its U.S. newsprint benchmarks gained about $13/tonne in November. However, in the latest week (ending Nov. 22), the increase was just 78 cents, to $751.31/tonne, for 30-lb newsprint and up just 86 cents, to $801.07/tonne for 27-lb newsprint.

RBC Capital Markets reported that U.S. daily newspaper circulation for this year's first half fell year-over-year by 4.6%, and Sunday circulation dropped 4.8%.

With the economic slowdown adding to already sluggish demand for newsprint due to falling circulation and reduced advertising in newspapers, newsprint consumption is expected to continue to erode. RBC Capital Markets projects that total U.S. consumption in 2008 vs 2007 will be down 15%, or by 850,000 tonnes.

In October, North American newsprint production dropped 6.6% year over year, bringing the year-to-date total to 8.604 million tonnes, down 7.8% from Jan.-Oct. 2007, PPPC reported. The operating rate in October fell to 92% versus 93% last October; however, through this year's first 10 months the operation rate increased to 95% vs. 93% a year ago.

Canadian mills ran at 93% in October vs 91% last October, while U.S. mills operated at just 90% versus 96% a year ago. Year-to-date, the operating rate in Canada improved to 95% vs 92% a year ago, and the U.S. rate was down to 94% this year vs 95% last year, according to the PPPC.

North American newsprint production declined 6.6% year over year in October (845,000 tonnes), and was off 7.8% year over year during Jan.-Oct. 2008 (8.604 million tonnes).

Canada faring better
While newsprint output fell in both the U.S. and Canada in October, Canadian production was down less than in the U.S., with a year-over-year drop of 4.9% in Canada versus a decline of 9.0% in the U.S. Year-to-date, through, U.S. production (3.557 million tonnes) was off 4.8% versus a 9.9% decrease in Canada (5.047 million tonnes).

Total North American newsprint shipments fell by 9.2% year-over-year in October (877,000 tonnes), and were off 6.9% year-to-date (8.631 million tonnes). In October versus a year ago, U.S. shipments fell 11.6% while Canadian shipments dropped 7.4%. Shipments during Jan.-Oct. 2008, though, were off less in the U.S. (down 5.4%) than in Canada (down 7.9%), to 3.533 million tonnes and 5.098 million tonnes, respectively.

Since mid-year, North American newsprint exports have been steadily increasing month to month, although not all months have improved compared to a year ago. In October, though, exports increased year-over-year by 21.6%, bringing the total through the first 10 months to 2.136 million tonnes, up 4.9% from the same period in 2007, PPPC reported.

Not all overseas markets were up, though. October shipments fell year over year to Western Europe (down 26.2%) and Japan (down 16.8%), but were up to Latin America (up 14.5%) and ?Other? markets (5.8%), while non-Japan Asia was flat.

Through the first 10 months, export gains to non-Japan Asia (up 24.6%) and Latin America (up 16.7%) more than offset losses to Western Europe (down 20.7%) and Japan (down 17.4%).

Inventories dropping
A good sign for the newsprint industry was that North American producers were able to reduce inventories in October. At month's end the 336,000 tonnes in stock was a drop of 32,000 tonnes from the end of September and 59,000 tonnes lower than on Oct. 31, 2007, PPPC reported.

North American mill inventories are down 114,000 tonnes against the past five-year average increase of 9,000 tonnes over the same period, noted RBC Capital Markets.

The inventory drawdown during October was 20,000 tonnes in Canada and 12,000 tonnes in the U.S. However, at month's end the 260,000 tonnes held in stock at Canadian mills was down 78,000 tonnes from a year earlier while U.S. inventories of 76,000 tonnes were up 19,000 tonnes year over year.

Consumer inventories were also lowered in October. All U.S. users reduced stocks by 43,000 tonnes, to 766,000 tonnes, while U.S. dailies whittled down inventories by 38,000 tonnes, to 665,000 tonnes.

At the end of October, consumer inventories represented 44 days of supply for all U.S. users and 49 days of supply for U.S. dailies. For each, stocks were down one day from a month earlier but up 10 days from a year ago, according to the PPPC.