Newsprint: Back from a difficult year in 1999, looks forward to another healthy year in 2001

Market Upturn in 2000. For much of 2000, newsprint was viewed by analysts as the favored grade in the pulp and paper market as demand for North American newsprint grew strongly throughout the year. Between December 1999 and September 2000, newsprint prices rose $100/mton after two successfully implemented $50/mton price hikes, rounding out the year at $610/mton.

High consumption and low inventories at U.S. dailies marked much of 2000, and North American producers reported full order books throughout the year. Many industry observers believe the upturn in the market can be attributed in large part to strong advertising lineage sales spurred by the technology sector and a healthy economy in 2000.

Newsprint demand in Asia also grew in 2000, causing a drop in overseas imports to the U.S., which averaged about 56,000 mtons for the first seven months of 2000, a 6% decrease from the same period 1999. The seemingly strong Asian market caused some North American companies to consider expansion into Asia. One of these is Bowater Inc. who bought South Korean newsprint maker Seepong Corp. in October for an estimated price of $201 million. Bowater already owns Korea's Halla Pulp and Paper Co., and with the acquisition of Seepong has the capacity to produce 286,000 mtons/yr of newsprint in Asia.

Grade Structure. The United States and Canada are the world's largest consumer and producer of newsprint, respectively. North American mills were expected to produce an estimated 15.9 million mtons in 2000, up from 15.7 million mtons in 1999. The increase in production (out of an estimated capacity of 16.3 million mtons in 2000) should put the year's operating rates by the North American mills at an est-imated 97%, compared with 96% in 1999.

The overriding majority of newsprint demand in the U.S. comes from daily newspapers, which consumed 9.5 million mtons of newsprint in 1999. The largest dailies in the U.S. are published by Gannett Co. Inc., Knight Ridder Inc., Tribune Co., which merged with Times Mirror Co. earlier this year, Advance Pub-lications Inc., and New York Times Co.

Inventory/Production. The North American newsprint industry ran at near full capacity for much of the year. For the first five months of 2000, the U.S. operating rate averaged 98%, compared to 96.8% in 1999. Mill inventories remained low throughout the first eight months of 2000, averaging about 364,000 mtons. The highest mill inventory levels were in January at 429,000 mtons, the lowest in March at 323,000 mtons, a 47% decrease from March 1999. In order to meet the increased demand, production was ramped up; however, some producers were running behind schedule during the peak consumption months, lending to market tightness. Although no market related downtime was scheduled for 2000, Abitibi-Consolidated Inc. vowed to remove 400,000 mtons of newsprint from the market by mid-2001. In July Abitibi announced it would shut its 130,000 mtons/year West Tacoma, Wash., newsprint mill, a step that put the company one-third of the way towards the permanent removal of its stated goal.

Outlook. The majority of industry analysts are predicting a slight downturn in consumption after the first of the year in 2001, but note that the outlook for the newsprint market will remain positive. Reports that the dot-com advertising environment is slowing are supported by slightly diminished ad lineage sales during the fall months. Also lending to a de-crease in consumption is the continued move toward reduced web widths, which can reduce consumption by up to 8%. In-dustry sources are predicting another price increase-from $20/mton to $50/mton-for newsprint during the first quarter of 2001.

BY KATHRYN MACKENZIEG Assistant News Editor