June Newsprint Stats Suggest Price Hike

By: James McLaren, special from Forestweb (ForestWeb) The newsprint industry's June statistics suggest that prices will soon rise.

Positive signs for the Canada-U.S. industry included even lower inventories in June, stronger demand, and the first significant growth for shipments since the third quarter of 2000, the Pulp and Paper Products Council (PPPC) in Montreal reported last week.

"The June numbers from PPPC show that the producers are doing what they have to do to create the fundamentals in support of a price increase," said Dave Allan of Allan Consulting in Houston. He emphasized the decline in inventories and the first year-over-year increase in daily consumption since 2000.

Total newsprint inventories dropped a total of 81,000 tonnes from May to June, more than double the 10-year average decline of 31,000 tonnes, PPPC reported.

U.S. demand was up 1.1% in June compared with a year ago, while total U.S. consumption was unchanged.

"June newsprint numbers continue pointing to a bottom in the market," said Deutsche Banc Alex. Brown analyst Mark Wilde. He said the late summer/early autumn "dead cat bounce" price hike "appears fairly certain." But a continued rebound will require further improvement in demand, he added.

"Prices are at cycle bottom and at cash break-even levels for the high-cost producers," said Morgan Stanley Dean Witter analyst Matt Berler. "Rising wastepaper costs, improving demand, low inventories, and rationalized capacity suggest that a price increase is likely and will succeed." He noted that the newsprint recovery "is still modest," with consumption down double digits from peak 2000 levels.

Total Canada-U.S. newsprint production of 1.095 million tonnes in June was 1.2% lower than June 2001 -- an 86% operating rate, PPPC reported. Allan noted a "heroic amount of downtime" among the three biggest newsprint producers: Abitibi-Consolidated, Bowater, and NorskeCanada.

North American shipments grew 2.9% year-over-year in June, registering "significant growth" for the first time since late 2000, PPPC noted. Most of the growth (70%) was due to increased exports (+10%), but domestic deliveries also increased 1.1%.

North American mill stocks shrank by 83,000 tonnes to their lowest level in a year and a half. At 365,000 tonnes, mill stocks stood at 22% (or 100,000 tonnes) below the 10-year average.

Most of the inventory decline happened at Canadian and U.S. mills, while U.S. consumer inventories stayed flat. Total stocks in June were at their lowest level in over seven years, 1.491 million tonnes, and stood at 17% (or 294,000 tonnes) below the 10-year average, PPPC noted.

"Consumers destocked excessively over the past year, driving prices down below prior cycle lows," Berler said. "However, now we believe consumers will need to ramp up newsprint purchases before the seasonally strong fourth quarter despite higher prices."

Newsprint consumption by U.S. daily newspapers rose for the first time in exactly two years excluding December 2000, which saw some growth mainly due to the fact that it was an irregular accounting period for several major publishing groups. Total U.S. consumption was flat in June and was down 3% in the first half of the year. The June consumption numbers are right in line with the most recent ad linage figures, which were up 0.3% in May.

North American offshore exports were up 10.4% in June to 246,000 tonnes, with a 20.5% rise to western Europe and 27.2% to Asia compared with a year ago. Year-to-date, exports are off 13.3% to 1.259 million tonnes.

Offshore newsprint imports to the U.S. were 12,000 tonnes in June, down 32.3% from last year. Through the first six months, imports from offshore are down 20.1% to 80,000 tonnes.

Shipments to all the major overseas markets expanded in June, PPPC noted. Deliveries to Latin America were particularly strong with a 12% increase over the same month last year. And though exports to Western Europe and Other Asia also progressed significantly, it should be noted that the year-over-year comparison was made easier by lower than normal exports to those regions in June 2001, PPPC said.

Evidence of the market's sharp downturn remains; at the half-way point in the year, newsprint demand is off, total U.S. consumption is down, and total shipments year-to-date are down 7.9%.

Year-to-date newsprint production of 6.719 million tonnes is down 9.0% from the same period in 2001. Total demand is down 6.8% to 5.546 million tonnes, and total shipments were down 7.9% to 7.300 million tonnes, PPPC reported.

Gannett Co. Inc. and The New York Times Co. noted big drops in newsprint expenses during the second quarter, according to their financial reports issued in July. Newspapers again reported lower newsprint costs from lower prices and mostly lower usage.

Gannett noted newsprint expense declined 24% for the quarter. The New York Times Co. said newsprint expense declined 25.1% in 2Q compared with 2001. Its average cost per ton of newsprint decreased 27.5%, which was partially offset by an increase in consumption of 2.4%.

NORTH AMERICAN NEWSPRINT STATISTICS June 2002 (000 tonnes)
	June	% change	Year-to-date	% change
	2002	2002/2001	2002	2002/2001
Production	1,095	-1.2	6,719	-9.0
Shipments	1,177	2.9	6,720	-7.9
Demand	944	0.4	5,546	-6.8
U.S. demand	848	1.1	4,986	-8.5
Mill inventories	365	-13.3	--	--
U.S. user inventories	1,126	-18.0	--	--
Source: Pulp and Paper Products Council, Montreal. From Forestweb.