Newsprint Prices Still Edging Up, And Producers Want A Lot More

Philip M. Stone January 14, 2010 Follow on Twitter

Newsprint pricing for 30-lb pound paper has increased some 3.3% since the beginning of the year to $529.15, up some $18 a tonne, with major producers looking for $25 a tonne increases for each of January and February.

Even so, the price is still some 30% lower than the same time last January 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 $83 (18.6%), according to figures from FOEX Industries. 

So it appears that even as publishers find more and more ways to save on using newsprint, producers are having continuing fortune by limiting supplies, and it seems the law of supply and demand is shifting back to the producers, but at a heavy cost of closing down mills with people losing their jobs.

Major producers such as AbitibiBowater, White Birch, Kruger, and Tembec have announced a $25 per tonne price hikes for both January and February. Since September some producers have announced increases totaling about $125 but have fallen well short of that – partly because back in September AbitibiBowater was reluctant to impose increases, but it does seem that January could be on target for the $25 target.

The best description of what is going on within the newsprint industry comes from Michael A. Siebers, president and CEO of the Blue Heron Paper Co, in Oregon that filed for bankruptcy protection at the end of last year.  “It (the bankruptcy and subsequent layoffs) is primarily the result of the downsizing within the newspaper industry which itself has been hit hard by loss of readership, and loss of advertising due to the economy. We are working with our local union representatives to try and create more flexibility within some of the jobs we retain so that, as we go forward, we will be a more nimble organization.”

“We will still be providing newsprint to our customers, but we must deal with the stark reality that’s its demand, for now, is in decline. Over time, as we implement our business plan and as we grow the other facets of our business (specialty papers), we hope to be able to reabsorb as many of these employees as possible. Getting this country’s economy back on its feet would really help.”

He added the company has “an ongoing liquidity crisis due to the loss of newsprint orders and a steep decline in newsprint and specialty paper pricing. And we are facing a steep increase in our delivered electricity costs in January 2010 due to a significant increase in the transition cost we have to pay to our local utility."

Blue Heron may not be the size of AbitibiBowater but it shows the reasons have not gone away that put AbitibiBowater into US and Canadian bankruptcy protection last year.

Canadian newsprint producers are continuing to cut way back on production, according to Kevin Mason at Equity Research Associates, a Canadian independent research firm. He says producers have the capacity for 10 million tonnes annually but right now are producing only around 7.2 million. That’s a real problem because it is thought within the industry that in order to make a profit newsprint mills need to be operating at around 90% levels. And according to Mason those numbers are not going to get any better, at least for the foreseeable future, with estimates of no more than 6.9 million tonnes this year and even less in 2011.

One can easily buy into those numbers when it seems the top priority for US newspapers this year is to entice more and more people to their web sites. Newspaper advertising fell near 25% in 2009 and is expected to decline close to 10% again this year, so obviously there is no incentive there for publishers to be using more newsprint.

And to show how difficult newspapers have it right now Canwest’s newspaper publishing unit has filed for bankruptcy protection. It publishes 12 daily newspapers including the Vancouver Sun, the Montreal Gazette and the Ottawa Citizen but there do seem to be vultures circling.

Publishers are still looking for ways to save on newsprint usage, the most popular being to shrink page size. TheLos Angeles Times announced this week, for instance, it plans to reduce its width from 12.5 inches (31.75cm) to 11 inches (28cm) which has pretty much become the American norm for broadsheets.

How long before the norm becomes letter size (A4)?