Outlook for U.S. Newsprint Pricing
Heading Lower, But When?
David Allan is the owner of Allan Consulting, which publishes the Newsprint Tracker© forecasts and commentaries. For seven years, his firm has provided market guidance for companies with exposure to newsprint and printing paper markets worldwide. Allan’s 29 years in the paper industry include nearly 14 years as marketing director of Abitibi-Price and then Abitibi-Consolidated. He has also worked as newsprint and printing/writing paper editor for Pulp & Paper Week.
Newsprint prices are likely to end 2009 well below current levels. Before publishers begin popping champagne corks, however, they should remember that a couple of potential obstacles could derail or delay any downturn in pricing. In November, the Pulp & Paper Week benchmark hit $775 a tonne, an all-time record. Even then, there were signs that the cycle had reached its peak. More recently, major eastern suppliers began to rescind announced December increases, leaving average pricing at – or below – the Pulp & Paper Week November level.
Thanks to anticipated downtime, production dropped about 8% in 2008 and we expect it to drop 10% in 2009. Also draining tonnes out of the market is the recent rise in exports. AbitibiBowater, for one, exports nearly half of its output. Net exports are headed for an 8% increase this year; but then should drop by as much as 5% next year, depending on currency, due to the impact of the global recession on demand in nearly every region.
U.S. newspapers have been in a recession for two to three years. Our model shows ad spending down nearly 19% in 2008 and 17% in 2009. We think U.S. newsprint consumption will drop by close to 17% both this year and next, overwhelming the downtime announced thus far by producers. The result will be a buildup of already high inventories, driving a steady decline in prices through 2009. The chart on this page shows averages for 2008 and 2009 as a whole; we think prices could end 2009 below $650 after starting the year over $100 higher than that.
However, there is an asterisk. Labor contracts at many Canadian mills are up for renewal in April 2009; AbitibiBowater will be the union’s target. Mills representing nearly a quarter of North American capacity could be struck. At this point it is simply impossible to handicap the chances for a walkout. But a long strike could stop any price slide in its tracks – and the fear of one could slow the market’s downward momentum until a new labor contract is signed. There is one other reason for publishers to worry. Number two producer White Birch, previously not a big supporter of downtime, has said it will remove 50,000 mt of production during the first quarter. This is not sufficient by itself to balance the market. If other producers join them – unlikely, but not impossible – it could still dry up enough surplus supply to keep prices flat, or worse, next year.
Beyond 2009, structural trends involving both circulation and advertising will push demand steadily downward, probably by the mid/high singles. Unfortunately it is easier to see this forecast being too optimistic than the opposite. We expect capacity to respond to secular demand declines: to start, the 2009-10 price collapse will force a significant number of machines out of the market. Even beyond that, major producers recognize the long-term trends and are committed to rationalizing capacity. Current dollar pricing should trend up over the five-year period, but with a continuation of the historic pattern of price cycles lasting three to four years on average.