Newsprint: Will 2005 be the long-awaited year of recovery?
ANALYSIS OF NEWSPRINT
GRADE STRUCTURE. Newsprint is an uncoated paper defined as not less than 65% mechanical fiber, with chemical pulp added to improve runnability on printing presses. Historically, groundwood has been the primary furnish, but thermomechanical pulp, chemithermomechanical pulp, and/or recovered fiber from old newspapers and old magazines are now commonly used.
The standard basis weight for U.S. newsprint is 30 lb. Basis weights can range from 24 to 35 Ib, and some U.S. newspapers are switching to lighter grades to trim rising newsprint costs. Transaction prices for 27-lb basis weight newsprint are typically around 6% higher than for standard 30-lb newsprint, but the lighter grade yields an additional 8% of printable surface.
The world leader in the production of newsprint is Canada, and the U.S. is the world’s largest newsprint consumer. About 37% of the 37.3 million tonnes of newsprint produced worldwide in 2003 came from the U.S. and Canada.
North American mills are expected to produce an estimated 13.4 million tonnes of newsprint in 2004, down from 13.6 million tonnes in 2003. The decrease in production equates to an operating rate of 92%.
PRODUCTION/CAPACITY. Since its historical peak of 16.6 million tonnes in 1997, North American newsprint capacity has fallen steadily. According to the Pulp and Paper Products Council (PPPC), by 2003, the permanent closure of nine machines had removed over 1 million tonnes of capacity. Major conversions, grade switches, and changes in product mixes removed an additional 1.2 million tonnes.
The downtrend continued in 2004 as the North American newsprint industry shrank its capacity base to match declining demand from publishers. In July 2004, the PPPC removed capacity totaling 475,000 tpy that had been down for more than 12 months from its official capacity estimates. Almost another 500,000 tonnes of idled capacity will almost certainly be removed in the PPPC’s next revision.
PRICING. For more than two years, North American producers have been struggling to raise newsprint prices from their August 2002 low of $445/tonne. In February 2004 producers implemented the fourth $50/tonne price increase in 18 months. Buyers resisted, and there was effectively no single price increase until July, when a $35/tonne increase was accepted, and the market price stabilized at $550/tonne.
On September 1, North American producers implemented another $50/tonne price hike for standard 30-lb newsprint. So far most major producers appear resolute, and at least one has shown willingness to drop orders rather than reduce the $50/tonne target.
OUTLOOK. Industry expectations for a newsprint market resurgence in 2004 failed to materialize as the U.S. economy became mired in an economic “soft patch”. Despite positive job creation figures early in the year, U.S. dailies’ ad lineage gained only 2.1% in the first half of 2004. By July year-to-date newsprint consumption in the U.S. had retreated another 1.9% and publisher demand remained weak.
Predictions that the Olympics and the U.S. presidential election could kindle a demand turnaround in the second half of the year looked increasingly unlikely come the fourth quarter. U.S. dailies consumed 4,000 tonnes less newsprint in September than in September 2003, and while total U.S. consumption of newsprint was essentially flat year-over-year, consumption at U.S. dailies was 1.1% lower.
That said, analysts at RISI believe advertising lineage may be gradually shifting toward the positive, and that 2004’s last quarter will yield a marginal uptick in seasonally adjusted consumption that translates into a year-over-year lift of 1.2%. If this happens, it will be the largest jump in nearly five years.
Chris Cook, Pulp & Paper Week News Editor
Copyright Paperloop, Inc. Dec 2004
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