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Newsprint decline suggests tough year: Salman Partners

A report released by Salman Partners indicated that total U.S. consumption of newsprint and U.S. dailies consumptio…

A report released by Salman Partners indicated that total U.S. consumption of newsprint and U.S. dailies consumption dropped 11.5% year-over-year and 9.1% in January.

The report confirmed, January included one less Sunday of consumption which we believe was responsible for 2.5% to 3% of the year-over-year consumption decline. Net of this difference, we note that consumption was still down sharply from the full-year decline of 7.1% and 6.3% in 2006, respectivelyEven more troubling than the acceleration of the negative consumption trend, is the fact that newsprint prices are falling hard. We note that newsprint pricing, as tracked by Foex Indexes Ltd., topped out at US$643.88 per tonne (30lb newsprint) on June 6th and has traded down US$43.67 per tonne or 5.9% since that time. At the same time, the lighter basis-weight 27lb paper has decreased by US$43.67 per tonne, or 6.4%. Heavy price discounting at the renewal of a number of six-month contracts, as well as additional contract volumes, was the reason for the lower newsprint prices.

Pulp & Paper Week estimates that prices in February were US$630 per tonne, down US$45 per tonne from the peak in September. We note that newsprint prices had been on a steady upward trend since bottoming out in the summer of 2002. Producers were able to get these price hikes by managing newsprint supply, but it seems that the group has now lost their resolve. With the announced deal to combine Abitibi and Bowater, we suspect that other newsprint producers will wait to see what the big dog does once the deal is consummated in Q3. Unfortunately, this wait-and-see attitude isnt going to do anything to stop the price decline in newsprint.”