Newsprint Price Hike Likely

By: E&P Staff Newsprint prices will most likely head upward this spring, according to a brief issued today by Goldman Sachs. The investment firm expects that "roughly half" of the $50/ton price increase proposed in February will come into effect in May especially as advertising continues to improve. A recovery in the ad market drives the demand for more newsprint.

The brief said that it did not take into account a possible strike by Canadian newsprint workers, which, if it occurs, could cause a spike in costs for the near-term.

Goldman Sachs pins the increase on "newsprint producers' desire to bolster weak profitability rather than a dramatic shift in supply and demand."

The increase will affect the newspaper industry in a variety of ways according to the investment firm. Belo, The New York Times Co. and Tribune Co. will feel the greatest impact of any price increase. Knight Ridder and The Washington Post Co. can withstand the jump mostly due to their investments in mills that represent 50% or more of those companies' consumption. Gannett Co. Inc. and Tribune have little "internal capacity" and Media General will benefit from higher prices "as it produces more newsprint than it consumes."

Newsprint represents 15% of industry costs, the second largest expense after labor (roughly 50%). Newsprint prices tend to be volatile, sometimes swinging as much as 20% in a given year. Gannett, Knight Ridder and Tribune consume the most in the industry -- an estimated 23% of production -- and therefore are also the largest buyers.