George Ionides is president of Temanex Consulting Inc., N. Vancouver, Canada.

North American newsprint: A maturing market

At approximately 16.5 million mETRIC tons of annual capacity, and 12.5 million metric tons of annual consumption, the North American newsprint industry is the world’s largest. North America accounts for 42% of global capacity and 34% to 35% of demand. However, both demand and capacity shares have been dropping the last 10 to 20 years—a trend which is likely to continue. The reasons for this are obvious, namely that the rest of the world, and especially the emerging economies of Asia and Latin America, have been exhibiting higher growth rates in demand, compared to North America: the world’s most mature market. North America is also the world’s largest exporter of newsprint, with about 3.6 million metric tons exported in 1997, and about 3 million metric tons exported in 1998.

The industry went through one of the most painful periods in its history during the early 1990s, when real price levels dropped to historical lows, rivaling those of the Great Depression in the early 1930s. At the same time, concerns about long-term raw material availability and cost, plus market maturity with possible declining demand, kept capacity expansions below where they would have been in the 1980s.

A brief period of historically high prices in 1995 was followed by collapsing prices in 1996. From a peak around $750/metric ton in the second and third quarter of 1995, prices stayed around $500/metric ton or below until 1997, when a strong North American economy and healthy advertising expenditures pushed U.S. newsprint consumption up and kept operating rates at near 100% for the U.S. industry and about 94% for Canada. With strikes at Fletcher Challenge Cananda and Abitibi-Consolidated Corp. mills constricting supply, prices continued to trend upward in 1998 reaching a peak of about $600/metric ton until dropping again late in the year when the mills reopened.

Neither the short- nor the long-term market outlook is particularly encouraging. In the short-term, a number of factors are combining to bring about softening in the market. These include the Asian economic crisis, and a slowdown in U.S. demand growth.

In the long-term, North American newsprint demand will continue to decline. There are, again, several reasons for this, which include relatively slow population growth, the slow growth of the mature North American economy, competition from electronic media, and competition from higher-quality mechanical printing papers. We are forecasting that North American growth will decline an average of 0.2%/year in the 1995 to 2005 period, and 0.8% in the 2000 to 2010 period, while Asian and Latin American growth will rise about 4% to 5% over the next five years.

On the positive side for newsprint markets, the above factors accelerated the significant restructuring which began in the late 1980s. The result has been numerous machine closures and/or conversions to high-value uncoated (and some coated) mechanical printing grades, as well as increased industry concentration during the last one to two years. It is hoped that this will lead to a more balanced supply/demand situation in North America, although the global nature of the market makes it difficult to avoid the impact of overcapacity in other markets, as for example is happening now with Asia.

In spite of escalating wood costs in many regions during the last few years, the North American newsprint industry remains quite competitive, based on its raw material and power costs. Nevertheless, the industry is quite mature and its equipment, on average, is not as modern or as productive as that of the other major producing region, Western Europe.

For example, regarding speed, the most modern Western European machines (installed during the last two to four years) outperform their North American counterparts, with several European machines running at speeds in the 1,500 to 1,700 m/min range, while the fastest North American machines run in the range of 1,400 to 1,500 m/min.

The North American newsprint industry is quite mature, and demand growth rates are expected to turn negative during the next decade, as circulation/readership drop and electronic substitution takes its toll. Nevertheless, it is still a highly dynamic industry which will continue to supply overseas market demand, especially in East Asia, for some time to come. In its efforts to maintain competitiveness, the industry is adopting new papermaking technologies, ranging from shoe presses to mineral pigment fillers, specifically calcined clay and more recently precipitated calcium carbonate, surface treatment (e.g. gate roll size press treatment for product destined for Japan), and so on. It will also continue to move capacity up the quality spectrum, in order to maintain a more favorable supply-demand balance than has been the case in the last 10 to 20 years. Ongoing consolidation and increased supplier concentration should facilitate the transition to a more balanced market.

This is excerpted from a paper given at the PPIPublication and Business Paper Conference in November.