Newsprint Pricing Edges Up, But Will It Stick?

Philip M. Stone October 8, 2009 Follow on Twitter

Standard 30 pound US newsprint pricing rose 2 % last week, according to FOEX Indexes, and at $462.34 per metric tonne it now stands at a eight-week high. A blip or producers have turned the corner?

It could be that newspapers are getting a bit of their own medicine – they have cut costs dramatically, including their newsprint consumption, and that is producing more positive earnings reports, but those improvements are based entirely on the cost-cutting, while revenue still decreases. Given that, newsprint operators are removing more and more product from the market and the question becomes whether the market been sufficiently squeezed to drive up prices again or publishers will get inventive yet again in figuring out how to use far less newsprint? 

A look at consumption and production numbers tells that for now it may be swinging the producers’ way. Total US newsprint consumption through August was down 25.6% compared to a year ago, but North American newsprint production fell 30.3% in the same period, according to the Pulp and Paper Products Council. For August, consumption was down 27.1% but production was down 38.6% from a year ago. So, as much as newspapers have reduced consumption the producers are pulling a higher percentage of product from the market. And the producers, by declaring more mills to be shut are saying they’re not through yet in their effort to drive up prices.

While newspapers may tweak their newsprint usage somewhat, trying for every last drop of diminished usage, there’s not much more to be done without seriously affecting circulation numbers. James Maroney, chief executive of the Dallas Morning News, recently said his newspaper’s business plan now is to get to a 60-40 or even a 55-45 ratio of advertising income to subscriber income and that kind of subscription loyalty means an end to editorial manpower losses and it means adding pages rather than producing thinner newspapers. If the industry as a whole takes that approach then newsprint usage should start creeping up, and already US publishers are increasing slightly their inventories.

Newspapers are not shy in admitting their 40% or so in newsprint savings this year has played a large part in making their earnings more cheerful. "Our continued efforts to achieve efficiencies and further consolidations companywide along with significantly lower newsprint expense resulted in another substantial decline in our operating expenses," Gannett Chief  Financial Officer Gracia Martore said last week as she surprised the markets with stronger projected Q3 earnings based on cost cutting, causing Gannett’s stock to rise 25% over two days.

But the newsprint producers are continuing their pullbacks at an even faster pace.   Kruger, for instance, that has cut production at three Quebec mills this summer has now announced it will close production at its Corner Brook newsprint mill in Newfoundland and Labrador for a couple of weeks starting October 12. Kathy Dundersdale, the provincial minister for Natural Resources, says she recognizes that the industry that is so important to the region is undergoing fundamental change that will bring continued hardships.

“People read news and get their information differently these days,” Dundersdale said. “That technology is changing rapidly. The newsprint industry is struggling to keep up with it, to re-orient itself and find again its niche in the world.”

And then there is insolvent AbitibiBowater, deep into its bankruptcy restructuring, that has announced that at the end of the month it will indefinitely idle paper machines at several mills in Canada and the US. And let’s not forget Catalyst that says it won’t reopen its Elk Falls plant in Vancouver that closed in February unless union workers agree to significant wage and benefit cutbacks in exchange for a profit-sharing plan (there are newsprint profits these days?). Even with the givebacks the workers would still earn around C$26 an hour which is probably still too high to have a profitable newsprint business these days but go tell that to the guy who has mortgage payments to meet. The likelihood is the company probably won’t mind too much if the union workers take their time in deciding.

John Harrison, an AbitibiBowater mill manager in Ontario, told a recent Chamber of Commerce meeting just how ferocious cutbacks have been. He said that 30 years ago there were more than 20 paper machines and five pulp mills in the region; today it’s three paper machines and three pulp mills.

Even so, Quebec Economic Development Minister Clement Gignac says he believes there is still a two-million-tonne overcapacity in North American newsprint production, and the indications are the producers have that as their target. So with more newsprint to be withheld and newspapers having thinned out their product to such a degree that it will be hard to find more big paper savings – will tabloid (compact) finally rule? -- then it looks like the  higher newsprint pricing may stick.