European Newsprint Demand Sinks But Producers Now Reporting Profits But In North America As Price Continues Up Losses Continue

Philip M. Stone February 11, 2010 Follow on Twitter

Major European mills have been announcing black ink numbers for a change, but all agree the improved financials are coming from aggressive cost cutting while newsprint demand and prices still weaken. In North America, however, the price of 30-lb standard newsprint continues up slightly after a brief one-week blip, but producers still report financial losses.

UK newsprint prices negotiated in January were said to be near historic lows given the current Euro exchange rate. That follows a report by the Association of European Publication Paper Producers, that the UK, Germany and The Netherlands in particular were seeing large newsprint demand reductions. Italy is also looking for major newsprint pricing cuts, not only because of falling demand coupled with excess European capacity but also because of Canadian and Russian movements in the market.

The paper producers said that in December demand across Europe dropped some 20% from a year earlier with newsprint shipments down 12%; those shipments would have been even less but for significant exports to the Middle East and Asia.

So with such bleak news it might be surprising to see major producers like Norway’s Norske Skog and Finland’s Stora Enso reporting much improved Q4 earnings. Study the Norske Skog numbers and it is easy to see the good numbers come from savage cost-cutting, and not from the sales side. Revenue dropped in the quarter by one-third yet profits surged by 1.95 billion Norwegian kronor ($325.5 million; €238 million), turning from a 1.28 million kroner loss last year in the same quarter to a 667 million kroner profit for the quarter this year.

So, sales way down, profits way up – how did they do it? It did sell a paper mill in China that became final in the quarter, but also in 2009 the company let go some 1300 workers. And it is hinting at more layoffs this year, too. “The main task ahead is to create a better balance between supply and demand, improve productivity and cut expenses to ensure consistency between cost level and profit," said CEO Sven Ombudstvedt. His company is expecting European newsprint prices to drop 15%-20% this year.

Stora Enso had a similar Q4 picture, turning a loss from the same quarter a year earlier to a profit this year, and it was done on less revenue, too. And the revenue prognosis remains bleak, “Global economic recovery is underway but any pickup in demand is forecast to be slow and insufficient to restore supply and demand balance in the short term and alleviate overcapacity.”

In North America publishers continue to heavily cut back on newsprint usage and producers continue to heavily cut back on supply. The result so far this year is that the 30-lb paper price has increased, but not by near as much as producers had been looking for. FOEX indexes reported 30-lb paper prices at $533.56 this week which is a 4.4% increase since the start of the year. But that $22 a metric tonne increase for the year is far short of the $25 a tonne producers wanted for each of January and February.

The price is still some 28% lower than at the beginning of 2009 when the price was at $749, but on the other hand since the 2009 low of $445.89 on September 1 prices have risen some $88 (19.7%), according to FOEX numbers. 

And RISI says that North American capacity is now around 10.2 million tonnes annually but North American dailies now need only about 3.67 million tonnes which would be about a 25% drop from the year before. The prognosis is that number will decrease as the year goes on, so unless producers can come up with huge exports in other markets the closing of mills and other cost savings will likely continue.

Tembec CEO James Lopez told it like it is at his company’s annual meeting a couple of weeks back when he also announced a Q4 loss. “It’s going to be a fierce battle that’s going to rage between consumers and producers of newsprint,” he told shareholders. The only strange thing about that quote is that he seems to be talking about the future – aren’t they in that fight right now?

He later told a news conference, “We’ve lost demand in newsprint that’s never going to come back, regardless what happens with the economy.”

A prime example of why is how major US daily newspapers are reducing their widths yet again, down one inch to 11 inches. It is a basic given in the industry that such a reduction saves 7%-8% on newsprint usage and considering that newsprint is somewhere between 15%-20% of a newspaper’s overall expenses that savings can be quite significant.

And subscribers don’t seem to object too much either to the smaller width size as long as type fonts are not reduced. There’s an old maxim in the newspaper business that you should never mess with what many readers consider their most favorite page – the comics – but some editors apparently don’t learn until bitten really hard. Newspaper readership ages each year, which means eyes get weaker, which means reducing the type font is about as big a faux pas as one can make. People may not complain if a couple of local beats are cut, but cut the space or font size given to comics and you had better head for the hills.

US newspaper groups have been announcing improved earnings, but like the newsprint producers it’s not coming from the sales side but rather from savage cost cutting. Advertising revenue continues down, albeit not falling as steeply as it did a year ago. Even newspaper companies that have emerged from bankruptcies supposedly with their finances in order are on the rampage again to cut costs.

Then there are companies like McClatchy that have announced the good news that they  are renegotiating debt, giving them years more to get their financial houses in order, but look at the fine print and the lenders are taking their pound of flesh by charging very high interest rates for that breathing space. For a company such as McClatchy it means severe cost-cutting must continue for some time to be able to generate the cash flow to meet those increased payments, let alone other costs which is one reason why many of its newspapers have already announced layoffs this year. The last thing McClatchy wants to see right now is increased newsprint costs.

The overall newsprint industry situation is best summed up by Norske Skog spokesman Tom Bratlie, “We are in the middle of an extreme period. Nobody makes any money.”

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 21 articles. 47 pages PDF (November 2008)

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