Newsprint Producers Managed a $114 Per Tonne Increase in 2010 – Can They Do That And More for 2011?

Philip M. Stone January 5, 2011 Follow on Twitter

North American newsprint producers eked out a 22.4% ($114) price hike last year and with AbitibiBowater now out of bankruptcy and looking to do good with a new CEO the battle lines are drawn yet again.

The problem, which the producers recognize, is that newspaper revenue is still trending down and while the quarterly percentage decreases are now, for the most part, in lower single digit percentage terms, they are still going down. So, higher newsprint prices are tough to digest. The New York Times said in December, for instance, that it expected that higher year-over-year Q4 newsprint prices would hit the bottom line by $13 million minus whatever savings there might be from lower consumption.

Already US newspapers are increasing their subscription and newsstand pricing and blaming it on higher newsprint prices. The Daily Tribune in Mount Pleasant, Texas, as just one example, told subscribers, “Recent newsprint prices forces us to take this (raising subscription prices) step. According to the best information available (to the editor), cost for the paper the Tribune will be printed on in 2011 will go up by $20,000." Now that’s a newspaper of just some 5,000 daily, but translate that math to leading metropolitan newspapers  and the increase could be in the range of some $400,000 per 100,000 circulation, perhaps more, depending on the number of pages in each issue. So, with newspapers still downsizing those kinds of cost increases are really tough -- can US letter size (European A4) be so far away?

But producers have their problems, too.  Standard 30lb newsprint ended last year and started this year at $625.60 per metric tonne, according to FOEX Industries, and they really want to reach a target of around $750 a tonne which they last saw in January, 2009. That would mean an increase this year of some 20%.

Price increases did not come easily last year. Several times the producers announced a $25 monthly increase only to fall on their swords. But with AbitibiBowater now out of bankruptcy, having shed some 20% of its pre-bankruptcy newsprint capacity, and with newsprint still accounting for some 40% of its business via its 37% North American market share -- the field is set for the perfect storm. And other producers, too, were busy last year cutting capacity to crimp supply and force up prices.

Paul Quinn, an analyst at RBC Dominion Securities, said in a recent research note, “We expect (AbitibiBowater) will use its scale and very strong financial flexibility to manage paper supply to match demand, support prices and improve margins.”  Maybe so, but the company is making no secret that it is planning less reliance on newsprint earnings for its bottom line and intends to diversify into other paper products that have a more favorable growth profile.

But not everyone is so bullish. Strategic Analysts, a consultancy to the forest industry based in Omaha, Nebraska, said in a recent report, “While prices have been increasing and markets have improved, we remain bearish on the prospects (for newsprint producers).”

Users cut consumption by more than 10% on average last year and yet the producers still managed that 22.4% increase over the year. There’s not much more newspaper can do to cut consumption if they keep to current size and intend keeping some sort of decent editorial product. Of course, if advertising takes another dive that will mean less newsprint usage, but that, of course, is not the way newspapers want to cut consumption.

The financial markets seem to think that producers are now on the right track and company shares are being recommended. Tembec, for instance, rose 300% last year and with AbitibiBowater out of bankruptcy having shed some $6 billion from its balance sheet the thinking is that company is now going to do well. A rise in paper prices can have a big effect on the bottom line – at Catalyst it is said that a newsprint $50 per tonne increase adds five cents to the earnings bottom line.

And the thinking goes that if the US comes out of recession within a couple of years, and advertisers do return to some degree to print, then that could mean more newsprint usage. Just take a look at Europe where print has improved quicker than in North America -- European newsprint demand was said to have increased by 4.1% in November compared to the previous year, according to CECIPRINT, a non-profit organization of newsprint and magazine grade manufacturers.

All of this against a background that in the past decade saw newsprint  demand drop 50% -- hard to remember that back in 2000  demand was at an all time high with newspaper circulation setting records. Newsprint, incidentally, by the end of 2000 went for $615 to $620 per metric ton following two price increases totaling $90 per metric tonne that hit in the spring and fall of that year. So today’s price of $625 is almost the same – but 10 years have passed.

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)

Order here