Mumbai: Imbalance between demand and supply will likely keep prices of imported newsprint volatile in 2009, making it another difficult year for a publishing industry already struggling through an economic downturn.
The price of newsprint, which accounts for 50-55% of the total cost of producing a newspaper, declined by $310-360 (Rs15,128-17,568 today) a tonne in January from the unusually high $960 it touched in the quarter ended December.
But newsprint producers say the decline is only a temporary breather and the current price level of $600-650 a tonne can’t be sustained. The second half of the year will see newsprint prices heading north again as production cutbacks start, they warn.
Going up: Newsprint reels in the Hindustan Times press in Greater Noida. Publishers are struggling with slack advertising revenue due to the economic slump; say any hike in newsprint prices would hit them hard. Sanjay Sharma / Mint
“The current price level is not sustainable. Nobody is making money at this price point,” said Hannes Skisaker, general manager of Norway-based newsprint producer Norske Skog PanAsia Co. Pte Ltd. Skisaker was in New Delhi recently to sign new contracts.
“Besides the volatility in oil prices, the cost of raw materials, chemicals, transportation, am-ong other things, has gone up in the past few months, so newsprint prices can be no exception to this,” added Robert Amos, sales director at Norske Skog.
India consumed about 1.8 million tonnes (mt) of newsprint in 2007, according to the latest data available, and at least 50% of this was imported.
Global newsprint prices were extremely volatile last year. March and June quarter newsprint contracts in 2008 were signed at $660 and $760 a tonne, respectively, which fell to $520 a tonne in the three months ended September. The price climbed to $960 a tonne in the last quarter, within striking distance of the historic high of $1,000 it hit in the last quarter of 1995.
“Newsprint industry globally is going through a tough time,” said Skisaker. “The demand is down in many leading markets and the sellers are forced to increase the prices to keep their business afloat.”
As the US, Europe and Japan battle recession, newsprint suppliers have problems of their own. The industry is struggling with overcapacity, diminishing demand from markets such as the US (where demand has declined to 8.5mt a year from 13mt a decade ago), choppy currency markets and volatile raw material and oil prices.
“Supply of international newsprint is likely to contract considerably this year because some big global suppliers are either cutting production or completely shutting some of their mills to keep their costs under control,” said Anil Vij, managing director of Anika International Pvt. Ltd. Vij represents several global newsprint suppliers in India.
Montreal, Canada-based AbitibiBowater?Inc.,?the world’s largest producer of newsprint, recently announced a 1mt cut in production as it struggled to repay debt. Likewise, Norske Skog had said in November that it will cut the global capacity of different grades of paper by 450,000 tonnes.
Another leading producer, Montreal-based Kruger Inc., had said on 7 January it will cut newsprint production by 25,000 tonnes in the first half of 2009. One of the largest pulp and paper makers of North America, British Columbia, Canada-based Catalyst Paper Corp., had said on 20 January it will cut production at three of its mills, and this will include 55,000 tonnes of newsprint in the first quarter.
“The slowdown in newspaper advertising, along with the restructuring by publishers in key paper markets, is unprecedented and conditions are expected to remain very challenging in the foreseeable future,” Richard Garneau, president and chief executive officer of Catalyst Paper, said in a statement.
With supply from leading newsprint producers contracting, Vij expects newsprint prices to climb in the second half of the year.
“It is a simple demand and supply situation. When the demand is down, the prices are down. When the demand goes up, the prices will also go up,” added Skisaker.
Indian publishers are already struggling with slowing advertising revenue in the middle of an economic downturn and any increase in newsprint prices would hit them hard. India’s economy is forecast to slow to a growth rate of 7% this fiscal year, from a four-year average of 8.9%.
“Indeed prices have come down, but not many can avail of this opportunity because nobody has the cash to spend,” said Harish Nagpal, assistant vice-president of materials at HT Media Ltd, which publishes the Hindustan Times, Mint and the Hindi language newspaper Hindustan.
“Most companies are bleeding currently. Most of us incurred losses in the last quarter,” said Mohit Jain, director, business and commercial, at Bennett, Coleman and Co. Ltd, the publisher of The Times of India and The Economic Times. Jain is also the chairman of the newsprint committee at The Indian Newspaper Society.
Some publishers say newsprint sellers are deliberately cutting production so they can raise prices. They say they will take steps to lower newsprint consumption and when demand declines, sellers will be forced to reduce prices.
“Newsprint consumption in November and December last year was down 15-20%,” said Jain. “Most publishers cut their paginations by 10%, dropped supplements and even shelved new projects in order to beat the rising newsprint prices. If the prices continue to go up, we will take further steps to reduce consumption.”