It’s A Never-Ending Cycle: Newspaper Publishers Shrink Their Newsprint Usage So Newsprint Producers Retaliate By Charging More; They Switch to Lighter Weight Paper And Producers Raise That Price, Too.

In the US it’s a never-ending cycle to which there seems no end, except that a new player might soon enter the game and change all the rules – China.

With prices around $640 for a 30-pound (48.8 gram) ton the Chinese believe they can ship newsprint to the West Coast and be price competitive. Chinese production is ramping up and within the next 18 months new modern low cost Chinese mills will be producing around 1.6 million metric tons of newsprint that the country can’t absorb domestically. With some of the new capacity already on line Chinese newsprint prices domestically are said to have declined some 18% since early 2005.

That’s not exactly what North American newsprint producers want to hear – or maybe it is. If the Chinese can take over what the North American companies believe is a money losing business then so be it, and they will concentrate on the higher-profit higher-quality paper business. The North Americans have been busy closing down newsprint making machines over the years because the margins were so slim, and facing the Chinese with cheap labor and new modern machines could change the playing field considerably.

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US newspapers are successfully reducing their newsprint usage with consumption in August down 7.8% from a year ago. Overall consumption for the year is down 7.7%, according to the Pulp and Paper Products Council (PPPC).

Analysts believe most of the decrease is due to the shrinking of the physical size of newspapers rather than from declining circulation. It’s not uncommon to see pager-count reduction announcements such as one earlier this month by the Boston Herald that it has cut about six pages daily in the general news, sports and business sections.

Other newspapers like the New York Times and the Los Angeles Times have banned financial market tables, making that information available on the Internet, instead. There is the same trend for television listings, and also comics and puzzles are reduced to no more than one page.

Gannett has started an interesting experiment in West Lafayette, Indiana, by switching the Lafayette Journal & Courier to the more compact Berliner size that the UK’s The Guardian adopted last year. Sized between a broadsheet and a tabloid, it is thought to be the first Berliner size newspaper in the US. It took a new $24 million printing plant -- a considerable investment for a 36,000 daily circulation newspaper. Initial reaction by readers and advertisers is positive.

And then there are the big newsprint users like the Wall Street Journal and the New York Times. The Journal is in the midst of a $43 million investment to shrink the width of the newspaper from 15 inches (38.1 cm) to 12 inches (30.48cm), It expects to make an annual $18 million savings by using less newsprint.

The New York Times has already reduced the thickness of its newsprint from 30-pounds (48.8 gram) to 27.7 pounds (45 gram). There were some initial ink fears but it works okay. But as might have been expected, the mills fought back by increasing the price of the lighter weight paper. The Times is joining the Journal in reducing its web width from 54 inches (137.16 cm) to 48 inches (121.9 cm), the same size as used by USA Today.

So with the expected Chinese competition, and newspapers reducing their newsprint usage what are the North American newsprint producers to do? The likelihood is that they will continue to try and increase rates, and if they fail they will close down more and more newsprint making machines. They have little choice.

Since July, 2002, US newsprint prices have increased by some 55%. US newspapers are keeping bigger and bigger inventories on hand knowing full well prices are still looking to go up. Those increased inventories were a prime reason why yet another price increase planned in August didn’t take off, but as those inventories reduce down the producers will try again.

The US is the world’s largest newsprint consumer, but due to much consolidation in the past 20 years there are just three main suppliers providing about 50% of production. Some 25% of capacity has been lost due to closing down mills or converting them to high profit coated paper products.

The producers are mostly publicly quoted companies so one has to believe their public statements that newsprint is a losing business even with prices as high as they are.

Shares in Bowater, for instance, closed Wednesday at $20.88, just $1.27 above its 52-week low. The company earlier this month closed its Thunder Bay, Ontario, Canada mill for 15 days but had some good news from the province’s natural resource minister that Ontario was providing a Canadian $1.39 million ($1.07 million) grant to convert one of its newsprint machines to higher revenue uncoated mechanical paper.

But for US newspaper publishers, that is yet another sign of the newsprint crunch continuing. Those on the West Coast may just be asking whether the Chinese can speed up their arrival.