FORESTWEB Report: U.S. Consumption of Newsprint Drops 25% in June

By: Debra Garcia With North American newsprint manufacturers curtailing output in June, the operating rate was just 64% and inventories declined 50,000 tonnes, to a level of 465,000 tonnes by month's end -- but this was still 136,000 tonnes more than a year earlier, according to the statistics released July 22 by the Pulp and Paper Products Council (PPPC) in Montreal.

June's was the lowest mill inventory level since January, and the combined drawdown in producer and user stocks during the month reduced total inventories to the lowest level in at least 28 years, according to a July 22 report from UBS Investment Research.

At the end of June, all U.S. user stocks of 598,000 tonnes were 11,000 tonnes lower than a month earlier and 179,000 tonnes lower than a year ago. All U.S. daily newspaper inventories increased by 7,000 tonnes in June, to a level of 544,000 tonnes, but this was still 124,000 tonnes lower than a year ago.

Despite the newsprint industry's recent discipline in trimming stocks, substantially more capacity will have to be closed to bring the market in balance as the demand trend continues downward.

In June, U.S. consumption of newsprint dropped 25.0%, bringing the total through the first half to 2.605 million tonnes, a year-over-year drop of 25.9%. Consumption by U.S. dailies was off year-over-year by 24.6% in June and by 25.6% year-to-date, to 2.046 million tonnes.

This was the seventh consecutive monthly decline of 20% or more, pointed out TD Newcrest in a July 20 report.

Decelerating trend
However, adjusting for one fewer Sunday this June compared to last June, the drop in total U.S. consumption was more like 22%, TD Newcrest indicated, further stating: ?We note a decelerating trend in the year-over-year decline in newsprint consumption over the last two months.?

The number of Sundays in the first half was the same in both 2008 and 2009.

Exports did not give any relief as they fell precipitously in June. Total North American newsprint exports in June plunged 41.7% year-over-year, bringing total North American newsprint exports through the first half to 762,000 tonnes, a year-over-year drop of 34.7%.

The sharpest decrease in North American newsprint exports was in the U.S., which fell 66.9% in June compared to a year earlier, bringing the total year-to-date to 134,000 tonnes, a year-over-year decline of 48.2%. Canadian newsprint exports in June were down 34.4%, and were off 30.8% through the first half versus a year ago, PPPC reported.

All destinations for North American newsprint exports were off substantially in June, except for the category ?Other,? which increased year-over-year by 87.3%, but this accounted for just a 4,000 tonne jump, while year-to-date remained down 19.8%, to 37,000 tonnes.

North American newsprint exports to all other markets were down both in June and year-to-date. The declines in June were as follows: Western Europe (down 16.2%), Latin America (down 38.4%), Japan (down 94.5%) and non-Japan Asia (down 94.5%).

Through the first half, export declines year-over-year included Western Europe (down 9.6%), Latin America (down 31.8%), Japan (down 64.2%), and non-Japan Asia (down 54.9%), according to the PPPC.

Producer discipline
North American newsprint manufacturers curtailed output substantially in June, with operating rates in the U.S. just 56%, bringing the year-to-date operating rate to just 66%. These rates compare to 95% for both June and first-half 2008. In Canada, the rate was 69% in June and 72% year-to-date versus 94% for both periods in 2008. Through the first half, the North American operating rate was 70% compared to 94% a year ago.

North American newsprint output was down 34.2% year-over-year in June, bringing total production through the first six months to 3.684 million tonnes, which was down 28.6% from a year earlier.

U.S. newsprint mill production fell 42.0% year-over-year in June and was down 32.6% year-to-date versus a year ago, while Canadian mill output declined by 28.8% in June and by 25.8% through the first half, PPPC reported.

Shipments of North American newsprint were off by 30.0% year-over-year in June, bringing the total through the first half to 3.359 million tonnes, which was down 31.9% from a year earlier.

U.S. shipments of newsprint were off by about one-third both in June and year-to-date, both compared to a year earlier, bringing the total year-to-date to 1.411 million tonnes shipped. Canadian newsprint shipments slipped 27.6% year-over-year in June, bringing the total through the first six months to 2.128 million tonnes, which was off 30.6% compared to first-half 2008.

In spite of the negative numbers, UBS Investment Research reported that there were ?some signs that things could be stabilizing,? as FOEX Indexes Ltd.'s newsprint prices in the U.S. were flat last week, which was the first time since February.

Prices flatten out. FOEX reported indexes for U.S. newsprint at US$492.91/tonne for 30 lb. newsprint in reels and at $527.85/tonne for 27.7 lb. newsprint in reels.

TD Newcrest indicated that the June reported price of $510/tonne was down 34% since the peak last November and was unsustainable as most North American mills are ?EBITDA-negative? at this price level.

Canadian mills are in an even worse situation than their counterparts south of the border, as the Canadian dollar's strengthening has raised the dollar-denominated price in Canada to C$565/tonne, which is only 4% above the previous trough during fourth-quarter 2007, according to TD Newcrest. ?We expect the industry will be forced to close more mills (indefinitely and permanently) in the near-term,? TD Newcrest stated.

The Reel Time Report's July issue indicated that ?perhaps two million tonnes? of newsprint capacity will have to be removed by the end of this year, which is about 20% of current North American capacity, and additional cuts will be needed in 2010.

Several North American producers recently had to rescind a planned $50/tonne August price hike in the U.S. after AbitibiBowater Inc. failed to join the effort.

Newsprint prices could bottom out in June, but probably will continue to drop by $20-$40/tonne in July and August and remain in a ?narrow range? for three to six months, according to The Reel Time Report, which listed 30-lb. newsprint in the U.S. at $480/tonne in July.