by Kathryn Mackenzie

The author is editor of Paperloop.com in San Francisco.

Demand for North American newsprint continued to soften in the first and second quarters, prompting the decision by major producers to decrease the amount of a planned price hike. In late April, producers announced that they would halve the planned increase to $25 per metric ton.

“Given this weaker business setting, it is now appropriate to moderate some of the cost pressures facing our customers,” says Arnold M. Nemirow, president and chief executive officer of Bowater Inc. of Greenville, S.C.

Even so, North America’s largest publishers continue to fight the increase, while producers try to keep the supply-demand situation in balance by following through on previously announced downtime plans.

Reports from Paperloop.com sources indicate that daily newspaper publishers who buy more than half of all newsprint consumed in North America did not necessarily pay any of the increase. Publishers of the top-five U.S. dailies didn’t, even at the reduced level, choosing instead to cut orders to producers adamant about increasing price. However, others were not up to continuing the price battle and paid the increase, raising the average transaction price for standard 30-pound newsprint by $15 per metric ton to $625 per metric ton.

“What goes around comes around, and when the market tightens up again and we need paper, producers are going to remember this increase and who played games,” says a source at a midsize daily who paid the increase.

According to industry analysts, the real question is no longer whether the increase will stick, but whether industry consolidation that has occurred over the past five years among publishers and newsprint producers will keep the price of newsprint from slipping below trend line, as it did during a similar slump in the mid-’90s.

“I’d be surprised to see any of this latest increase stick. We’re all looking at whether consolidation has created a more stable market, so that in softer economic times, the market stays balanced. Ideally, the price of newsprint will drop only slightly,” predicts Mark Wilde, managing director of the investment firm Deutsche Banc Alex Brown in New York City.

According to Wilde, by fourth-quarter 2001, typically a healthy time for newsprint producers and publishers, both parties will have a sense of how industry consolidation has affected supply, demand and price. In short, if the current price levels collapse, with or without any of this increase sticking, it will be a strong indication that in a soft economy, even industry consolidation may not keep the newsprint market in balance.

 

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