Weak Demand Still Plagues Newsprint Industry

By: Debbie Garcia (Forestweb.com) Final July newsprint statistics released this week by the Pulp & Paper Products Council of Canada (PPPC) continued to reflect a depressed North American market overall, although results from the U.S. are more positive than from Canada.

Total North American newsprint production year-over-year fell 3.2% in July to 1.148 million tonnes. This brought July's operating rate to 93% vs. 94% a year earlier, while the year-to-date operating rate was 93%, the same as a year ago. However, if the nearly half a million tonnes of idled North American newsprint capacity were to be taken into account, the operating rate would be 96% for both July and year-to-date, according to the PPPC.

The indefinitely idled newsprint machines include PM #1 at Tembec Inc.'s Kapuskasing, Ontario, mill; as well as PMS #1, 3, and 4 at La Baie, Quebec, and PM #2 at Lufkin, Texas -- both mills owned by Abitibi-Consolidated Inc. While these newsprint machines have been down for more than a year, Abitibi recently announced a three-week shutdown of its 150,000 metric tons per year (MTPY) newsprint and 93,000 MTPY groundwood papers mill in Kenora, Ontario, Aug. 8-29.

With major North American newsprint producers slating a Sept. 1 newsprint hike of $50/tonne, industry analysts generally believe more downtime will be required to shore up the chances of the increase being implemented. The general opinion is that the increase will only be partially implements, just as only $35/tonne of the $50/tonne Feb. 1 hike was realized.

Domestic Demand Down

PPPC also reported that total North American newsprint demand in July was 916,000 tonnes, down 7.5% from a year earlier and off 1.1% year-to-date (6.493 million tonnes) compared to the same period in 2003. There was no difference in the number of Sundays for both July and through the first seven months of 2004 compared to 2003 to skewer the results, indicating a true comparison between the two years.

Canadian demand fell year-over-year by 5.6% in July to 87,000 tonnes and was down 2.3% year-to-date (637,000 tonnes) compared to a year ago. U.S. demand was down even more sharply, falling year-over-year by 7.6% in July to 829,000 tonnes, bringing year-to-date to 5.856 million tonnes, down 1.9% from the same period in 2003.

Consumption by U.S. dailies was off by 1.2% in July (659,000 tonnes) compared to a year ago and down 1.2% year-to-date (4.645 million tonnes) from the same period in 2003. Total U.S. consumption, however, was down just a slight 0.7% in July (820,000 tonnes) compared to last July and off 1.9% year-to-date (5.746 million tonnes) from a year earlier.

The PPPC noted that the most recent data showed U.S. dailies ad lineage growing only marginally, up just 1% year-over-year in June, for a 2.1% gain in the first half of the year. More recent results compiled by Paul Quinn, paper and forest products analyst with Salman Partners, shows a more promising trend. July newspaper ad lineage from the top five U.S. publishers increased 2.2% year-over-year, up from June's 0.8% increase year-over-year. This brought the year-to-date increase to 2.2% from 2.1% at the end of June.

"Our historical data suggests that newsprint consumption tracks ad lineage, so we expect a corresponding improvement in consumption eventually," said Quinn. He noted that newspaper publishers are not consuming as much newsprint as would normally be expected when ad lineage increases because they are cutting costs by shrinking column widths, reducing font size, and raising the ratio of ad linage to news linage in order to trim newsprint consumption.

Inventories Rising

PPPC's latest numbers show newsprint inventories were generally higher in July than a month ago and a year ago. U.S. dailies had 958,000 tonnes on hand at the end of July, an increase of 27,000 tonnes from a month earlier and up 35,000 tonnes from a year ago. All U.S. users' stocks reached 1.199 million tonnes at the end of July, up just 9,000 tonnes from the previous month but an increase of 42,000 tonnes from a year earlier.

In terms of days of supply on hand, all U.S. users had 45 days of inventory at the end of July, the same as the previous month and up just one day from a year ago. U.S. dailies reported 46 days of supply at the end of July, up 2 days from a month earlier and 3 days more than a year ago.

Mill inventories also were higher, except for stocks destined for overseas, which at the end of July (112,000 tonnes) were down 12,000 tonnes compared to a month earlier and down 15,000 tonnes from a year ago. Mill inventories destined for the North American market reached 216,000 tonnes at the end of July, a jump of 27,000 tonnes from the previous month and up 40,000 tonnes from a year earlier.

Overall, North American mills at the end of July had 327,000 tonnes of newsprint on hand, up 15,000 tonnes from a month earlier -- which the PPPC indicated was "right in line with the five-year average." At the current level, North American mill stocks are 25,000 tonnes above a year ago, but 21% (or 88,0000 tonnes) below the historical average, according to the PPPC.

Canadian mill newsprint inventories at the end of July totaled 274,000 tonnes, an increase of 7,000 tonnes from a month earlier and up 32,000 tonnes from a year ago. U.S. mill stocks of 53,000 tonnes at the end of July were up 8,000 tonnes from the previous month but down 8,000 tonnes from a year earlier.

Canadian mills produced 702,000 tonnes newsprint in July, down 3% from a year earlier. Year-to-date production of 4.813 million tonnes was a loss of 4% from the same period in 2003. This brought the Canadian newsprint industry operating rate to 92% for July (down from 93% last July) and 93% for year-to-date (compared to 94% during the same period in 2003).

Overseas Shipments Up

U.S. mills produced 446,000 tonnes in July, down 3.4% from last July, but year-to-date production of 3.022 million tonnes was up 1.1% from a year ago. This brought the operating rate to 94% for July, the same as last July, while the year-to-date operating rate of 94% was up from 91% a year ago.

Total North American newsprint shipments fell 5.2% in July (1.133 million tonnes) compared to last July. This brought year-to-date shipments of 7.811 million tonnes 2.1% below a year ago. Shipments to North America were down 7.5% to 896,000 tonnes in July compared to a year ago, which bought year-to-date to 6.366 million tonnes, down 1.4% from the same period in 2003.

North American shipments to overseas in July, totaled 238,000 tonnes, 4.5% above July 2003 but year-to-date was still down 4.9% to 1.445 million tonnes. Much of July's improvement in North American shipments was due to Latin America and Japan. Newsprint shipped in July to Latin America rose year-over-year by 44.1% while shipments to Japan gained by 12.7%.

North American shipments to Asia (except Japan) was down only by 0.6% for July. However, year-to-date shipments to Japan and Asia (except Japan) were still down by 4.7% and 11.5%, respectively. Year-to-date shipments to Latin America were 9.7% higher than a year earlier. Shipments to Western Europe continued to lag, showing a 23.5% year-over-year decline for July and a 18.6% drop year-to-date from a year ago.

Canadian shipments year-over-year dropped 5.1% in July (695,000 tonnes), bringing year-to-date (4.781 million tonnes) 4.3% below the same period in 2003. Canadian shipments were down in all categories, with the biggest dip in shipments to the U.S., which declined year-over-year by 9.1% for July (422,000 tonnes) and 4.6% year-to-date (2.995 million tonnes). Overseas shipments actually rose by 5.8% year-over-year for July (188,000 tonnes) but were still down 4.4% year-to-date (1.165 million tonnes).

U.S. newsprint shipments were still up on a year-to-date basis for many markets but declined in some places in July. Total shipments fell year-over-year by 5.4% in July to 439,000 tonnes, while year-to-date (3.03 million tonnes) was still up 1.5% compared to the same period in 2003. Overseas shipments were down just 0.1% in July (50,000 tonnes) compared to last July but still off by 7.1% year-to-date (280,000 tonnes) from a year earlier. Shipments to U.S. customers dropped 6.1% in July (386,000 tonnes) compared to the previous July but were still up by 2.5% on a year-to-date (2.734 million tonnes) comparison with a year earlier.