followthemedia.com - a knowledge base for media professionals | |
|
ftm agenda
All Things Digital /
Big Business /
Brands /
Fit To Print /
Lingua Franca /
Media Rules and Rulers /
The Numbers / The Public Service / Reaching Out / Show Business / Sports and Media / Spots and Space / Write On |
Down, Down, Down Go Newsprint PricesOur prediction in April that newsprint prices would dive upon AbitibiBowater’s bankruptcy more than came true -- would anyone have expected that US standard 30 pound newsprint would fall below $500 this summer, and yet for the past couple of weeks it has been sitting on $492.91, according to FOEX Industries.It’s not just in the US, either. Even though European users signed yearly contracts at the beginning of the year the talk in the marketplace is that those contracts are being ripped up as publishers insist on renegotiating price. Even the UK where prices are usually less than on the Continent, 12-month contracts signed in January are being renegotiated in mid stream. It’s not fun being a newsprint salesman these days! And efforts by at least four newsprint producers accounting for around 50% of North American supply to impose an August $50 a tonne increase came embarrassingly to nothing as AbitibiBowater refused to go along. More than one analyst is predicting that by August US pricing will be down to less than $450 a tonne. Newspapers are reaping in the rewards for cutting circulation to outlying areas, cutting the actual size of the news page, cutting out loads of editorial since there are loads less people to write that copy, and, a consequence of less advertising means using less newsprint, too. But this is a two edge sword. Many Canadian mills are said to be at their “cash cost” now for producing newsprint and are close to, or already are losing money on every tonne shipped. And since there are absolutely no signs of newsprint usage increasing this year, and probably well into next year, then what becomes of those producers? Shut down even more supply? How many will be following AbitibiBowater into bankruptcy court if revenue shrinks so much they can’t handle their debt payments? The Canadian DBRS Ratings Agency forecasts that more Canadian forestry companies will follow in AbitibiBowater’s footsteps -- debt rated junk and eventual bankruptcy. The trouble with newsprint pricing is that it is a story of peaks and valleys. Newsprint producers raise prices and newsprint users do what they can to reduce their newsprint needs. It’s a pricing Yo-Yo with little stability and it is really no way to run businesses. Yet for whatever reason the two sides just haven’t been able to reach long term agreements. Look at the pricing over the past 13 years or so. In 1996 newsprint hit a high of $750 with some publishers then said to have paid closer to $900 fearful the price would go higher. This was a wakeup call and publishers then started the process of seriously reducing the news hole, narrowing pages and the like – what has been going for the past couple of years is not new, it is a continuation of old tried policies. Publishers at that time also started saying out loud that maybe there should be some sort of price stability pact between newsprint producers and publishers. But no sooner was that being talked about than those cost cutting exercises took hold and the price started softening and so, too, in proportional ratio did publisher talk of price stability. Within six years newsprint prices had sunk to $425/tonne and it was the producers talking out loud about having some sort of price stability. Look at more recent pricing of the past year or so. Newspaper publishers were really hurting -- classifieds disappearing and retail advertising down 20% and then increasing to 30% down but what did newsprint manufacturers do – they announced monthly newsprint price increases. From a January, 2008 low of $567 the price reached $758 a tonne by December, 2008 – that’s up a third in just one year. It was one of those “You’ve got your problems, I’ve got mine” scenarios. AbitibiBowater’s CEO explained a couple of months before his company filed for bankruptcy protection in April, “We've just got to make our newsprint business profitable ... or it'll just go out of business." Prices are now 15% less than January, 2008. Studying US consumption trends for the past 20 years must be somewhat horrifying to newsprint suppliers. US newsprint consumption in 1990 stood at 12.1 million metric tons of which three-quarters was used by daily newspapers and the rest by commercial printers. It will be a challenge this year if US daily newspaper newsprint usage reaches 4 million tonnes. And the problem facing newsprint producers even more is that if one were to accept the current print problems are cyclical – that the economy will get better and newspaper advertisers will return – there is no guarantee that newsprint usage will increase very much because many of the changes publishers have made -- less sections, reducing paper size, fewer editions, more limited circulation and all the like – will likely remain even after the cycle has reversed. About the only positive will be that increased advertising will need increased newsprint. Big newsprint savings are helping newspapers dig out from under their revenue shortfall. Gannett and McClatchy, for instance, both surprised with better than expected Q2 earnings, and both said it was because of actions taken on the cost side with newsprint savings a major factor. In a conference call with journalists and analysts, Gracia Martore, Gannett’s acting CEO, went into some detail on how what she called “significantly lower newsprint expense” has affected the bottom line. She noted, “The fundamentals of market supply and demand ultimately dictate all newsprint cycles. Producers announced, but very quickly rescinded plans to raise prices August 1. Last quarter, you may recall, I reported that there was an east-west regional price variance. That variance has since been replaced by an aggressive price decline initiated by producer efforts to maintain market share. It has been widely reported that excess North American supplies range, depending on the forecast you look at, anywhere between 1.5 million and 2 million tonnes. This imbalance has become the leading cause for continued price erosion.” She had reported that in Q1 the company was using 30% less newsprint than the year before which falls in line with January – May overall figures that show US newsprint consumption down some 26% from last year. Gary Pruitt, McClatchy CEO, reported, “Newsprint and supplemental costs declined 29.1%, reflecting lower usage. We continue to see meaningful newsprint price reductions and expect our newsprint costs to continue to decline, given the weak newsprint demand globally.” So, the suppliers complain they are not making any money now on newsprint, and even though they have shut down mill after mill the actions taken by publishers to cut down on consumption has overwhelmed even those producer supply moves. Newspaper companies like Gannett and McClatchy have big debt payments of their own that they are desperately trying to ensure they can meet, and they and other publishers are in no mood to be charitable in the deals they strike with newsprint producers. AbitibiBowater apparently is not coming out of bankruptcy protection any time soon – it has asked the Delaware Court to expand the time it may exclusively offer a reorganization plan until December -- so it’s going to take a while to see what emerges, how many of its various legacy labor agreements it abandons and the new vendor deals it strikes to lower costs. That outcome will be important, because the real question out there is that no matter how lean, how mean, a newsprint producer becomes in today’s environment, is there still money to be made in newsprint these days? Also see...The Paper Its Printed OnNewsprint, 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) ftm Members order here non-Members €49
|
||||||
Hot topics click link for more
|
copyright ©2004-2009 ftm partners, unless otherwise noted | Contact Us Sponsor ftm |