Newsprint: 1999 a difficult year but higher prices are expected in 2000

FIVE-YEAR LOW. 1999 was a difficult year for newsprint producers in North America who watched their profits shrink as prices plummeted to five-year lows. Between December 1998 and June 1999, newsprint prices declined $125/mton despite healthy demand from U.S. daily newspapers, the largest newsprint-consuming group in the world.

Many industry observers believe the downcycle would have come sooner had it not been for two major strikes in Canada during 1997 to 1998 which removed an estimated 1 million mtons of newsprint from the market last year. The strikes helped mask the devastating effect of the Asian financial crisis of 1997 to 1998, which deflated demand for newsprint in that region. As a result, exports from North America to Asia lagged and imports of low-priced Asian newsprint to the U.S. surged, but the full effect was not felt until early this year.

In recent months, however, the Asian economies have begun to recover and newsprint demand in the region has picked up again. As the issue you’re reading went to press, producers were trying to regain some of what they lost with implementation of a $50/mton price hike scheduled for Oct. 1. Producers based the increase on projections for strong domestic demand in the fourth quarter and recovery in demand overseas.

GRADE STRUCTURE. Newsprint makes up roughly 15% of all paper and paperboard made in North America. U.S. newsprint is usually produced in a standard basis weight of 30-lb (48.8 g/m²) but is available in standard basis weights as low as 24-lb (39.5 g/m²) and as high as 35-lb (56.9 g/m²).

Canada remains the world leader in newsprint production and exports, and the U.S. is the largest consumer of newsprint in the world. Other leading producers include Japan, Sweden, South Korea, and Germany. Major newsprint consumers outside the U.S. are Japan, the U.K., Germany, China, and South Korea.

Daily newspapers account for the majority of newsprint consumption in the U.S., the largest being Gannett Co., Knight Ridder Inc., Times Mirror Co., Advance Publications, and the New York Times Co.

INVENTORY/PRODUCTION. The North American newsprint industry ran at almost full capacity following resolution of the strike at Abitibi-Consolidated Inc. in late November 1998, even in the face of reduced demand in Asia and the onset of the first quarter, typically the lowest-consumption period of the year for the U.S. dailies. With operating rates averaging 96.8% during the first three months of the year, North American mill inventories began to rise and peaked at 603,000 mtons in March, almost 60% higher than they were during March 1998, according to the Canadian Pulp and Paper Assn. (CPPA). Producers responded by announcing market-related downtime aimed at reducing inventories and/or balancing order books. For the year, producers planned some 550,000 mtons of market-related downtime. In addition, Abitibi-Consolidated permanently retired 244,000 mtpy of newsprint capacity in order to improve the cost-competitiveness of its mills.

OUTLOOK. While prices were expected to rise during the fourth quarter, sources in the industry questioned whether the higher prices would hold into the first quarter of 2000 when demand wanes. Analysts by and large are forecasting higher average prices in 2000 in the range of $535/mton to $580/mton.

In the long term, the Internet is expected to curtail newsprint consumption by 537,000 mtons by 2004, according to Resource Information Systems Inc. (RISI). In addition, consumption will be impacted by the trend of publishers slimming their newspapers to a 50-in web, which can reduce newsprint consumption by up to 8%.

—By Nicola McIntosh News Editor