Hear That Ticking? That’s The Newsprint Time Bomb For Newspapers – Prices Are On The Up And Producers Are Looking For Big Increases

Philip M. Stone November 5, 2009 Follow on Twitter

Newspapers are doing better financially these days but it all is coming from the cost side, and high among those cost savings is the reduced spend on newsprint. But that particular euphoria may be ending for newsprint prices in North America are on the up -- 7.4% since September 1 according to FOEX Indexes, and the producers are looking for major increases before the year is out.

The major US newspaper companies boasted in their Q3 figures just how much in percentage terms they have saved on newsprint this year -– The New York Times said its Q3 newsprint expense was down a whopping 45% from a year ago, 28% from lower pricing and 17% from less consumption.  Over at the Washington Post, newsprint expenses were down 37% for Q3, with the year so far showing a 19% fall. And at Gannett, the nation’s largest newspaper group, the Q3 newsprint expense was 43% down.

But maintaining those savings going forward is going to be a lot tougher. The price for standard 30 pound newsprint in the US rose 3.5% in October – a 1.6% jump in the past week alone – and it’s up 7.4% since September 1. This week’s pricing at $478.79 is still very much on the low end, but the signs are that even with the extraordinary steps publishers are making to reduce their newsprint usage, the even more extraordinary  efforts by the producers to withhold supply is beginning to bite. And most producers are looking to shove through increases of $50-$60 a tonne by year-end. 

Previous such attempts in the past months have fallen by the wayside, but this time the giant AbitibiBowater is looking for a $50 increase by the end of the year so if the solidarity by producers remains then they might just reach their $500 a ton which many say is what they need to make it worthwhile to even produce newsprint at all.

The recent US audit circulation numbers for the six months to September could not have made for pleasurable reading by newsprint manufacturers.  Circulation at 379 U.S. daily newspapers fell by an average 10.6% in those six months with all of the top 25 dailies posting declines. Now, some of this was of their own doing – getting rid of bulk sales, stopping delivery to outlying regions and the like -- but also fewer people are subscribing, partly because of higher subscription costs.

Take The New York Times, for instance, where for the first time in memory its circulation fell below the 1 million mark, to 928,000. The Times has been boasting that even with such circulation falls its circulation revenue is up because of several newsstand and subscription increases over the past year or so, but it means it is now printing some 70,000 less newspapers than it did six months ago, and that accounts for most of their consumption decrease.

And since no one is really announcing increased advertising revenues it means there is little likelihood that newspapers will get much fatter in the immediate future – save for Thanksgiving Nov. 26 when people will actually stand in line to buy a newspaper so they can discover the big sales starting on the Friday.

On the manufacturing side, production at North American newsprint mills in September dropped some 34% from the same month a year ago with production for the year down some 31%, according to the Pulp and Paper Products Council (PPPC).

The problem for Canadian mills in particular, hard hit by not just  lower demand but a strong Canadian dollar, is that with current cost levels it’s tough to make a profit, if at all, with current prices. But at least now there is a general acceptance in many quarters, if not yet fully with the unions, that the cost basis within the industry has to come down.

That was made clear this week by Quebec Economic Development Minister Clement Gignac, former chief economist of the National Bank of Canada, who said the government could take a stake in AbitibiBowater, currently deep in bankruptcy proceedings in the U.S. and Canada, but before any such decision was made the company needs to produce an acceptable business plan with operations on a lower cost basis.

“The provincial government formed a group that includes union and paper industry representatives to find ways to reduce raw material and wage costs at mills in Quebec,” he said. “Before the government becomes a shareholder of Abitibi, all of the partners will have to make sacrifices that allow us to lower production at the Quebec plants. This means fiber costs and labor costs.”

Well, that sounds pretty plain but Abitibi spokesman Pierre Choquette seemed to pour cold water on the Quebec government taking a stake, saying, "We didn't see anywhere where he said the government is willing to be a shareholder or buy into the company. I think his comment was a more general message that the government is willing to do something - not close the door - but that everyone has to do (his or her) part.". But the Canadian press seemed to have gotten the message at the news conference that if the producers reduce production costs by some US $50 to $75 U.S. a tonne then Quebec would consider a stake.

The producers are struggling with high labor costs (but again go tell that to the guy putting kids through college and still paying off the mortgage) and crippling power costs, especially electricity, are a major concern. Whatever the Quebec Minister said, or was trying to say, the end result will be watched throughout Canada.

In the past 18 months AbitibiBowater has shut down more than 1 million tonnes of capacity in North America and more closures are on the cards. The industry as a whole is actively working on permanently closing down some 2 million tonnes of newsprint capacity, but with newspapers disappearing, cutting their circulations, cutting their size, the big question is whether that 2 million tonnes will be enough?

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