updated - amends US usage % With China Expected To Deliver 75,000 Tons of Newsprint to the US in 2007, and With Economies Having Already Cut US Newsprint Usage By 6.6% This Year, The Laws Of Supply And Demand Are Finally Favoring Publishers

Philip M. Stone December 14, 2006

The relationship between newspapers and their newsprint suppliers has never been a love affair. No matter what publishers did in the past to cut back on their newsprint usage to save costs the producers would go and close down a newsprint paper mill or two to reduce supply and the laws of supply and demand put publishers right back where they were. But this year is different.
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Newsprint economies within the newspaper industry are now really biting  – hard enough that planned newsprint price hikes during the summer basically had to be withdrawn. Depending on whom one talks to, the price is within the $650 - $670 per 30-pound weight (48.8 gram) metric tonne range, which is still about a 55% increase over the May, 2002 low of $425, but not as bad as the $750 of some 10 years ago.

Newspapers have made it a point this year to cut down on consumption. The New York Times has switched to 27.7 pound (45 gram) paper, and in 2008 it is reducing its page width from 14 inches to 12.  The Times was also one of the first newspapers to banish stock market tables and TV listings to the Internet. Going to the lighter weight paper saved it some $4 million annually and dumping the stocks saved another $4 million, and the narrower width may account for another $10 million annually.

Same new width for the “new” Wall Street Journal that debuts January 2nd, one column narrower, meaning a 20% reduction from its wider 15 inches to 12.  The Journal has invested $43 million to print its new size, but believes it will see an annual savings of $18 million. One unanswered question is whether the WSJ is able to get advertisers to pay the same or more for what is physically less space. European experience is that advertisers believe strongly there is a direct correlation between physical page size and advertising rates and that a full-page ad in a paper reduced in width by 20% should not cost as much as before.

Some papers have just plain reduced their daily editorial hole – the Boston Herald did it by cutting six pages from general news, sports, and business news. And then there is the plain fact that newspapers are losing circulation at ever alarming rates and less papers printed translates directly to less newsprint needed.

And if all that wasn’t bad enough for the North American producers, there’s a new player in the market. The Chinese say they can export their newsprint to the West Coast, and even the East coast via the Panama Canal and still offer very competitive pricing. Tribune has been conducting trials in Orlando and Los Angeles of 45 gram paper that is priced to sell and Gannett has also run some tests with both companies seeming to be impressed. There are a few minor technical problems that will get sorted out, but the Chinese paper is of very good quality and that gives US publishers some leverage against the Canadians they didn’t have before.

It’s thought that for 2007 China will export some 75,000 tonnes of newsprint to the US – a mere drop in the ocean to the approximately 4.4 million tonnes the US imports each year from Canada -- indeed the New York Times alone is said to use around 500,000 tonnes annually – but it gives the Chinese a toe-hold that will be exploited in the coming years as they increase their own rate of production. Within the next year or so the Chinese are expected to bring new modern mills on line producing around 1.6 million tons of newsprint that cannot be absorbed domestically. In the past year Chinese domestic newsprint costs have gone down by some 18 % as production has ramped up. 

The Pulp and Paper Products Council (PPPC) says that US newspaper newsprint consumption has dropped 6.6% for the first 10 months of the year, compared to the like period a year ago. Not coincidentally, newsprint mills in October produced 9.1% less product in October than they did a year ago.

The newsprint business never had been high margin, according to the producers, so they are always happy to find reasons to convert newsprint mills to other products with higher profit margins. The American company Bowater, for instance, runs Thunder Bay in Canada’s Ontario Province. It is the largest pulp and paper complex in Canada, and it is in serious financial trouble. It is undertaking a major review of its operations, having earlier in the year closed the mill for 15 days.

And it’s not that the local provincial government isn’t trying to help. The government in the past 18 months has committed C$900 million ($693 million) spread over the next five years to help the forestry sector. According to the Ontario Forestry Coalition, more than 5,000 people have lost their jobs due to pulp and paper mill closures in the province since 2002.

The government has given Bowater a C$1.39 million ($1.07 million) grant to convert one of its newsprint machines to higher revenue uncoated mechanical paper. And last month it announced a C$140 million ($108 million) plan to save paper companies 15% off their electricity bills over the next three years. Electricity costs have gone up about 60% over the past four years and electricity accounts for about 30% of mill operating costs.

Bowater reported a net loss of $16.1 million for its third quarter. "We are working aggressively to address cost competitiveness at our Thunder Bay site," the company said.

And with the Chinese chasing at their heels with their low-cost newsprint that they can actually ship to both costs of North America and sell for less than the Canadians are now offering, and US newsprint usage probably declining each year for a while, the writing is on the wall for the North Americans to continue reducing newsprint production, switching that excess capacity to mills producing high-end products with far fatter profits.

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US Newsprint Consumption Reduction Forces Bowater-Abitibi Merger - January 30, 2007

Bowater and Abitibi have announced they are merging to create a company generating some $8 billion in sales annually, but of more importance to US newspapers, they have 60% of the US newsprint market. The company will be majority owned by Bowater (52%) but the headquarters will be in Montreal.

Consolidation became inevitable as US newspapers are cutting back on consumption – partially because they are narrowing the width of their pages, they are reducing the news hole, they are banishing such items as stock tables to the Internet and also because circulation is down considerably not as many newspapers are being printed any more.  In the past five years US newsprint consumption has dropped nearly 25%. It is continuing to fall at around 5% a year.

Canada today sells about 8 million tonnes of newsprint annually in the US and having one supplier control 60% of the market should stabilize prices. China is also starting to make newsprint shipments but the 75,000 tonnes or so it will deliver this year will be like a drop in the ocean.