Producer/Publisher Newsprint Standoff

Newsprint markets which were strong for much of 2000 have peaked and now appear set for a period of steady decline. Despite this, the fate of the March newsprint price hike remains unclear with the producer/publisher stand-off continuing. Producers, particularly the two largest, Bowater and Abitibi, with hopes of demonstrating that consolidation pays off, are determined to implement the full $50/ton increase while buyers for major dailies, buoyed by their own recent consolidation, are increasingly entrenched against any increase at all. Let me try to provide some insight into this struggle.

Surprised by the sharp turndown in the economy, producers are now faced with the fundamentals of supply and demand shifting in favor of the buyers. A major downtrend in ad linage is the primary reason for declining newsprint consumption. Furthermore, publishers are reacting to higher newsprint prices with cost-cutting programs in areas such as narrower newspapers, less circulation promotion, and in some cases, circulation declines brought about by raising cover prices – all of which lower consumption. Producers, on the other hand, see the opportunity to throttle down the supply side in a manner never before experienced in the North American marketplace. But it’s going to take rapid implementation of a lot of downtime and mill closures for this to be effective, and so far only a very few have started.

Meanwhile, the publishers are curtailing orders in a major way that appears to be impacting the largest two producers far more than the others. The reason for this is many buyers have grown uncomfortable with large supply contracts that resulted from recent supplier consolidation and now are shifting volume to smaller suppliers. At some point, loss of market share will surely become a crisis for the largest producers, and, other than to simply accept it, rebating and lowering prices becomes their only means for recovering lost share. They might be saved from this should a dramatic turnaround in consumption occur, causing buyers to reinstate orders; however, the odds on this happening soon seem very remote.

Recently one keen market observer noted that if producers had insisted on receiving the full amount of the three previous increases, when the fundamentals were much more favorable, average prices today would be $25 higher, and they could go easy on the customers at this time. Now, the key producers seem more intent on proving that market consolidation is sufficient to drive home a price increase despite deteriorating market conditions. There remain, however, many that see a lack of resolve for achieving broad-based downtime sufficient for an orderly market and that the next market cycle will be driven by some producer solely intent on protecting the market share. Should this occur, we’re certain to experience another round of volatility that ultimately rewards neither producer nor publisher.

Producers couldn’t have picked a worse time to implement an increase, and the only certain outcome appears to be that buyer/seller relationships will be badly damaged one more time, with another lost opportunity to stabilize prices for the remaining year or longer.

Bernie Bottomley is a consultant to Publishers Associated to Gain Economy (PAGE) on newsprint related issues. He can be reached at bjbottomley@att.net. Reprinted from Page One Spring 2001 newsletter