Newsprint Consumption Weak As Price Jumps

By: James McLaren, special from ForestWeb (ForestWeb) Higher U.S. newsprint demand in July appeared to forklift right into inventories as consumption stayed weak, slowing success of an effective August price hike, analysts noted last week.

U.S. demand was up 5.3% in July, but consumption was down 2.8% compared with a year ago, and all user inventories rose 64,000 tonnes or 5.6% from June to July, the Pulp and Paper Products Council (PPPC) reported from Montreal. Total North American shipments progressed 4.7% year-over-year in July, the highest growth rate in well over two years, PPPC noted.

At stake amidst the bad and good data is a $50/tonne North American newsprint price increase announced by virtually all producers effective Aug. 1. Mills are trying to pull newsprint prices from current bottom levels of a revised, lower level of $425/tonne in July, according to The Reel Time Report. The publication's publisher noted that large publishers have stated they were not paying a hike.

The Reel Time Report showed prices rising most of the $50/tonne mark slated in August.

Deutsche Banc Alex. Brown analyst Mark Wilde in a report last week subtitled "Hanging In There," said the price increase did not seem to be reaching the broader customer base, although the larger producers insist that they are holding prices at around $500/tonne. "We are not seeing it reflected in the trade papers. However, we do expect to see some of this increase over the next month," he said.

Newsprint industry analyst Dave Allan of Allan Consulting in Houston said the substantial rise in consumer inventories was the most significant data of the month, and showed "consumption is still going sideways, at best."

One buyer commented that publishers were anticipating a fall price hike and were already building inventory, making mill order books in May to July look good. Total U.S. daily newspaper stocks rose 41,000 tonnes from June to July.

Consumption was clearly not better, the buyer added, and the "premature" price increase Aug. 1 was certainly not a fact of business. Daily newspaper consumption was down 2.0% in July, but with one less Sunday than last year's period.

PPPC said the most recent figures show newspaper advertising linage growing 2.1% in June, which brought ad linage to a negative 0.3% for the first half of the year. "Worth noting as well were the strong gains posted in July by U.S. vehicle and retail sales, growing respectively 10% and 4.6%," PPPC commented.

Despite the 41,000 tonne rise at daily newspapers, inventories were 139,000 tonnes, or 13% lower than a year ago.

"This is a good battle for producers to choose," Sutton said. "Publisher inventories are on the low side and the market is currently oversold." He said the top producers recognize they will need to add to their own low inventories in August and burn them off over the next few months.

Allan noted the 9,000 tonne inventory reduction at mills in June-July failed to impact the market. Even if the August price hike gets through, he said it is "perfectly conceivable" that the increase could retreat in September or October without producer downtime to prevent the current buildup of consumer inventories.

"The only answer to that, from the producers' point of view, is to produce less newsprint, since the market obviously doesn't need the volumes they're currently manufacturing," Allan said. He added that in July the mills held a below-average 23% of total inventories, a good indicator for future pricing.

Canada stats higher

PPPC reported total North American newsprint output in July of 1.202 million tonnes was up 1.2% from a year earlier, and shipments of 1.211 million tonnes was 4.7% higher than a year earlier.

With currency on their side, Canada's newsprint mills drove the total production increase as output up 7.8% to 740,000 tonnes as the industry operated at 92% of capacity vs. 85% a year earlier. U.S. mill output was down 7.9% to 462,000 tonnes, PPPC reported, as the sector operated at 83% capacity vs. 89% a year earlier.

Canadian mills showed stronger output, higher shipments to the U.S. market, and a bigger dip in mill stockpiles than their U.S. counterparts in July, PPPC data showed.

Canadian shipments into the U.S. were up 11.3% in July to 468,000 tonnes while U.S. domestic shipments were off 1.2% at 416,000 tonnes.

Year-to-date, total North American demand was down 5.0% compared with a year ago; output was down 7.6% through July to 7.922 million tonnes; and shipments were off 6.2%. U.S. consumption was down 2.9% year-to-date.

Again driven by Canadian mills, North American offshore exports were up 5.5% in July to 227,000 tonnes, with a 4.8% drop to western Europe and 61.7% rise to Asia compared with a year ago. Year-to-date, exports are off 11.0% to 1.484 million tonnes, PPPC reported.

Offshore newsprint imports to the U.S. through the first seven months are lower by 5.8% to 105,000 tonnes.

NORTH AMERICAN NEWSPRINT STATISTICS July 2002 (000 tonnes)
	June	% change	Year-to-date	% change
	2002	2002/2001	2002	2002/2001
Production	1,202	1.2	7,922	-7.6
Shipments	1,211	4.7	7,935	-6.2
Demand	998	4.8	6,556	-5.0
U.S. consumption	833	-2.8	5,863	-2.9
Mill inventories	353	-21.9	--	--
U.S. user inventories	1,198	-12.4	--	--
Source: Pulp and Paper Products Council, Montreal. From Forestweb.