Newsprint Price Increases Begin To Bite Into US Newspaper Earnings

Philip M. Stone November 4, 2010 Follow on Twitter

North American newsprint pricing is up some 22% this year, sitting this week at $621.52 for standard 30-lb newsprint, and that $111 per metric tonne hike since January is beginning to bite in spite of newspapers using less.

Producers had wanted the price increases to be much more, and they were able to contract the North American markets a bit by higher exports, but those are now falling back, meaning more supply in the North American market so could pricing stabilize, even drop a bit?

The FOEX Indexes price has stayed pretty stable for the past eight weeks – up only some $5 – indicating it’s not easy getting prices up. Producers are still 20% shy of where they want to be – at the 2009 January price of $749.  Consequently, producers will continue to do what they can to keep supplies short to get  prices up – for instance, look for extended production breaks between Christmas and New Year.

But according to Gracia Martore, Gannett President and CEO, newsprint producers won’t have an easy time getting prices much higher. She told financial analysts in a telephone conference call following the announcement of Gannett’s poor newspaper Q3 earnings, “Here in North America a pattern of regional fragmentation persists, with a continuing east-west price divide; in fact, an announced increase for October failed to garner support, confirming that market conditions remained inconsistent across the U.S... Looking to the fourth quarter, we expect fourth quarter newsprint usage prices will be higher than a year ago, but consumption is expected to be lower once again. “

Gannett was one of the very few newspaper companies actually reporting lower newsprint costs. “Newsprint expense in the third quarter was 11.6% lower due to a mid-single digit percentage decrease in both consumption and usage prices. Fourth quarter newsprint usage prices will be higher than a year ago but consumption is expected to be lower.”

Other newspaper companies, however, made a point of saying how higher newsprint pricing is already hitting their bottom lines:

• Robert W. Decherd, chairman, president and Chief Executive Officer, A.H Belo Corporation: “The Company's newsprint expense in the third quarter was $10.1 million, an increase of 10.5% compared to 2009 as newsprint consumption increased 2.5% and newsprint cost per metric ton increased 7.7%. The average purchase price per metric ton for newsprint increased 35.4% in the third quarter of 2010 compared to 2009.”

• The E.W. Scripps Company in a news release: “Despite a 9.0% decrease in newsprint usage, the expense for newsprint and press supplies in the third quarter rose 11% due to a 30% increase in the price of newsprint.”

• Torstar news release: “The impact of newsprint pricing is expected to be moderately negative in the fourth quarter. Torstar has arrangements in place with its suppliers that fix the price for the majority of Torstar's newsprint requirements in 2010. For 2011, there are similar arrangements in place that should result in relatively flat newsprint pricing on a year over year basis.”

• New York Times Company news release: “Newsprint expense increased 19.6%, with 25.8% from higher pricing offset in part by 6.2%from lower consumption.

• Journal Communications news release: “Total newsprint and paper expense in publishing was $4.4 million compared to $3.5 million, a 25.3% increase primarily due to an increase in the price per ton of newsprint…. The increase in operating expenses was primarily due to a $0.8 million increase in newsprint and paper expense.”

So, they are feeling it. Newspapers have been working overtime finding ways to cut consumption but the Q3 results seem to be saying that in spite of much less usage the price increases already in place have hit home.

And the producers are becoming more robust – what will that do to their pricing policies?  AbitibiBowater, the world’s largest newsprint producer, should be out of bankruptcy by year-end or early next year. And Catalyst Paper announced a Q3 profit of some C$6 million – modest, but great compared to the C$368.4 million loss in the previous quarter. The company noted that while North American newsprint demand is down over a year ago, the Q3 decline was less than in prior quarters.

Catalyst, like other producers, has shut down mills to restrict demand to get prices up. The company noted that newsprint is the only sector in its business where it is currently curtailing production, and that by indefinitely idling its Crofton # 1 paper machine, it has removed 23% of its newsprint capacity. It said that the permanent closing of its Elk Falls Mill has removed some 526,000 tonnes of newsprint and specialty paper capacity. So, they’re serious about squeezing supply.

No doubt publishers are looking for moderation in price increases – Gannett’s Martore said as much in her conference call – but since the newspaper industry and newsprint producers have been at loggerheads for ever – a pricing history of high mountains and deep valleys – there’s no reason to believe that is going to change any time soon.

See also in ftm Knowledge

The Paper Its Printed On

Newsprint, printing presses and page design are the basic components of the print media. The ftm Knowledge file tells the story. Includes 30 articles. 65 pages PDF (March 2010)

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