Newsprint Pricing Surpasses $500

Philip M. Stone December 10, 2009 Follow on Twitter

We have long predicted that 30-lb standard newsprint in the US would make it over $500 per metric tonne before the end of the year, and so it has – this week at $508.65 according to FOEX Indexes.

It means that the price increases the newsprint producers have been trying to implement, tied in with a drastic capacity cuts, are beginning to have an effect even though publishers are still seeking every way they can to cut down on newsprint usage.

Even so, prices are still far lower than where they started at the beginning of the year -- $749.63 – which means current prices are about one-third less – but since September 1 when the yearly low of $445.89 was hit the price has shot up some 14%. That is still not near as much an increase as the producers have been looking for, but at least they can point to a pretty steady trend that since September the weekly price has been increasing.

And with advertising trends in US newspapers still way down from where they were just last year – which was no great year – publishers are still hell-bent on saving newsprint costs as much as possible. In October US newsprint consumption was down 22% from the same month a year ago and full year consumption through October was off by one-quarter from the year before, according to the Pulp and Paper Products Council.

When you consider that big US newspaper groups are reporting an “improving” advertising climate meaning they expect “only” a 25% reduction in Q4 ad revenues from the year before you can see how the percentages in ad revenue decline and newsprint consumption are pretty close. And since no-one is really saying that 2010 is going to be a great advertising year  -- already some groups such as Gannett have announced a week of furloughs for Q1 next year -- then the pressure continues to keep newsprint costs as low as possible.

A.H. Belo of Texas in its quarterly report to the Securities and Exchange Commission gives some pretty enlightening information about its newsprint usage this year compared to last and is probably quite representative in percentage terms to what is true elsewhere. “Newsprint, ink and other supplies decreased $11.2 million and $21.8 million for the three and nine months ended September 30, 2009, respectively, when compared to the same periods in 2008. This decrease is related to a decrease in newsprint consumed. During the three and nine months ended September 30, 2009, the Company’s publishing operations used approximately 16,009 and 54,468 metric tons of newsprint, respectively, at an average cost of $685 and $689 per ton, respectively. Consumption of newsprint for the same periods in 2008 was approximately 26,830 and 85,929 metric tons, respectively, at an average cost of $684 and $650 per metric ton, respectively.” So, in 2009 the company is using around 37% less newsprint than it did in 2008 at an average price some 5% higher than 2008.   

That tells why there are still frequent announcements about newsprint savings such as this week from the San Luis Obispo Tribune in California, “In today’s newspaper, you’ll find a significant change — one that we take reluctantly but that’s nonetheless necessary as we continue to cope with the economic downturn affecting every industry. The Local section has been merged into the A section and the Classifieds advertising pages have been folded into the Sports section to save newsprint expenses… Savings in newsprint allows The Tribune to retain staffing, focusing its energy on covering local news.”

On the other hand The Marshall News Messenger in Texas has actually upgraded back to 30-lb newsprint having moved to 27.6-lb paper in 2005. The original switch had been made for savings, but Production Director Bob Billings said those savings never really materialized. He admitted the heavier stock absorbs colors better and it breaks less often while running through the press.

So, as publishers continue to tinker, suppliers are determined to contract the market supply even more with many analysts still saying another two million tonnes needs to be removed. In Q3 alone, according to Canadian Scotia Capital brokerage estimates, Canadian producers withheld some 750,000 tonnes of capacity.

In that type of environment, therefore, it is not difficult for producers to play hardball with employees. The Tembec mill in Pine Falls, Manitoba, Canada, for instance, has been put up for sale following the failure of arbitration. The company had locked out its 250 employees in September after failing to come up with a new collective bargaining agreement. If Tembec can’t find anyone to take the mill of its hands then the mill could well close permanently. The company last month reported a C$17 million Q4 loss, more than four times the loss for Q4 the year before. Some C$11 million of the Q4 loss came from newsprint which a year earlier had been profitable.

And that shows the problem pretty well. When prices were at $700 or more as in the beginning of the year the newsprint producers were eking out some decent profit. With prices hitting $450 and now only up to $500 a tonne it’s questionable whether there is any profit. It’s a classic supply and demand scenario with no end in sight.

See also...

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 21 articles. 47 pages PDF (November 2008)

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