Grade Profile

Newsprint: Consumption uptick drives rebound in North American newsprint market

The newsprint industry in North America made a comeback this year,
getting its first price increase in almost a year and a half and cashing in on a consumption upswing of 4% from its chief customers-U.S. daily newspapers.

The newsprint market this year was punctuated by a strike at two mills in British Columbia that started in July and was ongoing into the winter, as well as by a series of acquisitions and consolidations. This included the biggest one ever in newsprint (C$4 billion), when Abitibi-Price Inc. and Stone-Consolidated Corp. became the largest newsprint maker in the world: Abitibi-Consolidated Inc.

Prices. In 1996, the transaction price for 30-lb (48.8-g) newsprint dropped a record 33%-or $250 per metric ton-in nine months. The price bottomed at $500 per metric ton at the beginning of this year.

But the U.S. economy grew faster than expected in 1997, bringing advertisers back to the news pages. Advertising
lineage (a key indicator of newsprint consumption and demand) was up 4% to 8% among the major publishers by year-end, when compared with 1996. This helped spur the recovery in consumption by U.S. newspapers and printers, who reduced demand for newsprint in 1996 to its
lowest mark since the early 1980s.

The first price increase ($75 per
metric ton) began sticking in March. Producers had most of the increase implemented by the end of July. In a few cases, producers credited or rebated customers due to pricing disputes. Several large buyers were not charged a higher price until May. The transaction price moved to $565 per metric ton in June and stayed there until the fourth quarter.

Producers planned a second increase in November: $40/metric ton in the East and $35/metric ton in the West. Buyers for daily newspapers fought the increase in early November and it was unclear if it would hold. If the increases went through, the transaction price would range from $600 to $610 per metric ton on both coasts.

Production/inventory. The battle over pricing went on as U.S. mills operated at 100% and Canadian mills ran at 94% through September. The Canadian operating rate was affected by the strike at the Fletcher Challenge Canada Ltd. mills.

Even with high operating rates and consistent, improved consumption by dailies, producers in North America struggled with large mill inventories most of this year. However, producers dropped their inventories by 86,000 metric tons (the largest one-month plunge in years), to 446,000 metric tons at the end of September.

The producers continued aggressive exporting to help consolidate the
domestic market. By the end of September, Canadian producers had reached their duty-free limit of 600,000 metric tons to Europe. China was a heavy importer of North American newsprint through the first half of 1997.

North American producers were
slightly affected at home by increased U.S. imports from South Korea, Sweden, Norway, and Germany. The newsprint from offshore was small in terms of overall production. But the estimated 145,000 metric tons imported was the highest since 1990 and helped some publishers who had pricing disagreements with regular suppliers.

Outlook. Most analysts expected one price increase in 1998 that would push the average for the year into the range of $605 to $640. Newsprint demand next year is expected to remain consistent with 1997, since most U.S. newspaper companies reeled in record revenues this year.

Several publishers and newsprint producers said they were trying special pricing deals this year, such as setting a range that the price cannot exceed regardless of market conditions over a given time. Several outside companies, such as Enron Capital & Trade Resources Corp. and Citibank, offered price hedging deals, but interest so far is limited.

News Editor

BY BY GREG RUDDER

News Editor

FORECAST (000 tons)

Market share of top five companies: 51.2%
Market share of top 10 companies: 71.3%
Total North American capacity, 1997: 16,199 million
U.S.:6,525 million;Canada: 9,674 million 1. Tonnages include Stone Container Corp.'s mill in
Snowflake, Ariz., as well as full capacity of two joint
venture mills, Alabama River Newsprint Co. and
Augusta Newsprint Co. Sources: Canadian Pulp &
Paper Assn., AF&PA, Pulp & Paper Week.