Summary
Since 1999 newsprint production has fallen from an annualized rate of 12 milion st/year to the current 4+ tons/year. Many entire mills have been closed....some remaining mills have shut one or more machines while other mills have taken 2 weeks to 2 months downtime. With all this reduced supply it would seem only natural that prices have got to begin to stabilize. FOEX reported a drop of $8/ton down to $532.30...a drop of nearly $200/st. This in spite of extensive downtime. If demand continues to shrink will this not mean the permanent closure of a number of older, lower volume mills.....which often are located in rural areas where they are the only employer in the area? This is a very sad situation for all the employees but it would seem little can be done. Several producers have announced price hikes for August lst but it remains to be seen whether buyers will go along since there is so much capacity overhang.
Analysis
Producers have been taking extensive downtime (693,000mt or 27% of North American capacity during just the 2Q). Those mills which continued to run operated at only 67% capacity in May 09 versus 94% in May, 08. Abitibi-Bowaters was quick to shut six mills in 2008 and since then a number of other closures by other companies have taken place. Demand has been shrinking steadily for the past 5 years and shows no signs of levelling out. Each week brings some announcement of a major city newspaper reducing circulation, going on-line or limiting the days of home delivery. How much more reductionn in supply can the industry take if they are to maintain some semblance of pricing that is above cash-cost. The strengthening of the loonie has not been any help and projections are for it to be on par with the greenback by the end of the year. One significant "plus" among all these negatives is the price of ONP - which is significantly down from the first half of 2008.
Newsprint producers have two options - to move up to SC (supercalendered) grades or to coated mechanical grades. Unfortunately both options require an outlay of capital dollars and then market penetration must be faced. Neither are very palatable. In spite of this gloomy picture both Abitibi and Catalyst have announced a $50/mt price increase efffective August lst. This is sure to generate increased buying in July!
