NEWSPAPER INDUSTRY
Newsprint prices rise even as demand falls
NEW YORK — U. S. newspaper publishers are watching the price of newsprint rise at a record pace, even as the number of advertising and editorial pages is shrinking.
The price of paper stock, a daily publisher’s second-biggest expense after labor, has climbed 26 percent to a 12-year high of $700 a metric ton since October, pushed upwards by supplier consolidation rather than demand.
It’s the latest blow to newspapers already crippled by a 14 percent print advertising drop in the first quarter, the worst on record. While publishers benefited earlier this year from lower year-over-year paper prices and reductions in usage, the rising cost will have an impact on profit in the second half, Goldman Sachs Group’s Peter Appert says.
“It’s the worst of all worlds — ad-revenue declines exceeding expectations at a time when one component of cost growth is accelerating,” said Appert, in San Francisco, who has a “neutral” rating on Gannett. “It’s a year of records, and one of the records is just the amount of bad news.”
Behind this blast of bad news is the merger of Abitibi-Consolidated Inc. and Bowater Inc. in October, which created the world’s largest newsprint producer.
Since its formation, money-losing AbitibiBowater Inc. has closed mills to reduce supply by 600,000 tons annually, responding to record oil prices and a strong Canadian dollar. That has allowed the Montrealbased company, with about 45 percent of the North American market, to push through $20-a-ton price increases every month this year, even as consumption of newsprint by daily newspapers fell 15 percent in the 12 months through March.
The jump in prices is “unprecedented” in a period of falling demand, said Ed Atorino at Benchmark Co. in New York, who has followed newspapers for 25 years. Unit costs for newsprint dropped 29 percent from June 2001 to August 2002, a span overlapping with the last U. S. recession.
Prices will continue to rise $20 a month in the third quarter, AbitibiBowater spokesman Seth Kursman said. Energy, labor and fiber costs have all climbed, he said. RBC Capital Markets paper analyst Paul Quinn in Vancouver expects the increases to continue for six months.
The newsprint producers have pricing power because AbitibiBowater, White Birch Paper Co. and Kruger Inc. control 75 percent of the North American newsprint market, said CreditSights Inc. analyst Chris Ucko.
“We’ve seen substantial and unprecedented price increases since the merger,” said John Sturm, president of the Virginiabased Newspaper Association of America.
Publishers have responded with circulation cutbacks, smaller pages or lower-weight newsprint.
“There’s going to be a lot of hurt in the newspaper industry in the second half of the year as we cycle through these price increases,” Appert said.
