Newsprint prices show signs of easing

Newsprint prices show signs of easing

New Delhi: Amid mounting problems for India’s print industry, a silver lining is starting to appear in the form of some easing in newsprint prices. Until now, newsprint prices—one of the largest cost factors for print media—had been rising since mid-2007 contributing to weakening profitability at most of India’s print media firms.

Newsprint buyers at media houses say the situation is starting to become more favourable and they hope to drive down prices by $100-200 (Rs4,990-9,980) per tonne when fresh contracts are signed in January. The average official price for imported newsprint in India for the current quarter is $960 per tonne.

The cost of newsprint generally accounts for 55-65% of the total cost of a newspaper’s operation and a big surge, from $560 per tonne in early 2007 to $960, had sharply eaten into profitability of publishers, most of whom resorted to reducing pages, copies printed or switching to inferior, domestic newsprint.

Adding to their woes, an unexpectedly unfavourable exchange rate also dealt a blow as one dollar that could be bought for Rs40.30 in March, now costs about Rs50, effectively raising the price of newsprint by another 20%.

Now, the tide might be turning. “As with any other commodity, having reached the peak, newsprint prices will now come down," said N. Murali, joint managing director of Kasturi and Sons Ltd, the Chennai-based publisher of The Hindu. “In the first place, it had gone up to a level for which there was no justification. Large global manufacturers acted like a cartel and artificially suppressed supply. In the US, consumption is down by 10% and demand is growing only in Asia, particularly in India and China." He and other large buyers are basing their projection on a few contributing factors.

The first is the sharp drop in crude oil prices—from a July high of $147 to $52 now. Crude prices impact both freight rates and the input cost in the energy intensive manufacturing process. Some mills use coal as their energy source and the price of coal has also dropped substantially. According to V.D. Bajaj, executive director of Rama Newsprint and Papers Ltd, the price of imported coal has come down from Rs5,500-6,000 per tonne for most of this year to Rs5,000.

Another factor is the sharp drop in the price of old newspaper (ONP), a key raw material used to produce fresh newsprint. Bajaj said while ONP cost $275-280 per tonne even in September, it now costs $125-130 per tonne. ONP is used also in manufacturing the packaging for all kinds of consumer goods from shoes to beer and, due to a slowdown in global consumption, more of the commodity is now available for newsprint manufacturing, said Harish Nagpal, assistant vice-president, materials and production at HT Media Ltd, which is also the publisher of Mint along with the Hindustan Times and Hindustan.

Nagpal said shipping rates in some sectors have come down by half. A recent newsprint shipment from Rotterdam to Nava Sheva port in Mumbai cost his firm $45 per tonne, while the rate in this route used to be $80-85 per tonne till a few months ago, he said. Nagpal also points to the fact that Chinese newsprint manufacturers have started selling in India again, as domestic demand in that country has eased with the culmination of Olympics.

“Newsprint prices should come down by $100-120 in January," said Mohit Jain, director (business and commercial) at Bennett, Coleman and Co. Ltd (BCCL), India’s largest consumer of newsprint and the publisher of The Times of India and The Economic Times. “Spot prices are already indicating that prices are easing." Newsprint is acquired by newspapers mostly through contracts that are signed quarterly and any additional requirement is met through purchases from the spot market. When the price of newsprint is going up, spot prices are higher than contract prices and when prices are easing, spot prices drop below contract prices. Currently, newsprint is available in the spot market at much lower prices than the listed price and buyers are taking that as a cue for lower prices in January.

Bajaj, however, cautioned against reading too much into lower input prices. “It’s difficult to establish that price always reacts to input costs," he said. “Price is determined by the global supply and demand situation. These can, of course, be talking points while negotiating, but not a sure sign that lower prices are ahead. Cost plus margin used to be the pricing system, but those days are gone." But even as the cost side of the business shows some signs of easing, publishers are starting to face greater pressure on the revenue side.

Ad revenues, the main source of income for publishers, have slowed considerably in recent we-eks. “The ad revenue slowdown has accentuated since August," said Murali. “Now each month is progressively getting worse."

BCCL’s Jain said even if newsprint prices eased, there would be little relief. “You can enter a contract at a lower price, but where is the money to pay for even that? Cash flow is more important."