Newsprint Prices Decline

Newsprint Prices Continue Decline into 2002

The recession-triggered collapse of the advertising market, which has shaken scores of media companies, is rattling players farther down the food chain too, making last year perhaps the most painful year since the Great Depression for the volatile newsprint business.

"We saw a decline in domestic consumption of about 10 percent in 2001 versus 2000, and we’ve not seen so sharp a drop since the Depression," said Chip Dillon, an analyst with Salomon Smith Barney.

And despite industry consolidation in the late 1990s, which some observers thought would give the newsprint-makers greater pricing power, "the producers of newsprint couldn’t cut production fast enough last year to keep up with the collapse in demand," said Matthew Berler, an analyst with Morgan Stanley Dean Witter.

The new year has brought no relief. Newsprint prices, which had shot upward when the economy was cooking, have fallen sharply in the past seven months. After hitting a high for the year of $625 a metric ton for an average transaction in June – already down from roughly $750 a ton at the 1996 peak – the price has fallen to $490 a ton now, according to Kathryn McKenzie, newsprint editor of Pulp & Paper Week in San Francisco.

And many observers think the downward trend will continue, at least in the first half of this year.

"The average price in 2002 probably will be around $465," said John Morton, president of Morton Research, Inc., a media consultancy in Silver Spring, MD.

For newspaper publishers that have been badly bruised by the dropoff in advertising spending, the freefall in newsprint prices provides some measure of relief. Newsprint prices comprise 20 to 25 percent of newspaper publishers’ operating expenses – their biggest non-labor expense, Morton noted.

On the flip side, for newsprint companies it has meant weakening financial and stock performance.

Montreal-based Abitibi Consolidated Inc., the largest producer in North America, saw its share price fall 20 percent last year, a continuation of a prolonged slide from an all-time high of more the $32 a share in 1987 to an 18-year low of just over $6 a share in November.

As demand has fallen, newsprint producers have been trimming production as well, through temporary work stoppages, permanent shutdowns of plants and equipment and conversions of some newsprint lines to other uses.

If newsprint prices stay depressed, further industry consolidation and production cutbacks can be expected, Berler said.

– excerpted from Chicago Tribune