Decades of declining readership, publisher consolidations, intense competition from electronic media and soft consumer confidence levels have left the newsprint markets weak and tired.

In response, North American producers are investing hundreds of millions of dollars in an effort to diversify production of their groundwood-based machines to meet current demands for short-run, full-color free-standing-inserts and other new publications.

In addition, mills have added online, offline and offsite coating equipment, calendaring stacks, filler systems and conducted loads of new chemical trials to add value to newsprint.

It appears that mills are reserving their most modern newsprint machines for the mega-publisher markets, setting a stage for a robust newsprint import market well into the future.

Capacity continues to drop

In 2003, U.S. annual production capacity will fall below 7 million tons of newsprint, continuing a years-long trend.

Capacity is in steady decline, according to the American Forest & Paper Association, which reported that annual newsprint capacity has dropped about 2 percent this decade, compared to an increase of just under 1 percent during the 1990s.

Much of the 1990s growth was in recycled content newsprint, rather than new, grassroots, integrated mill expansion.

In Canada, the investment in recycled content has been even more dramatic: 20 mills installed equipment allowing them to provide enough recycled content to allow U.S. publishers to meet environmental regulations.

Nearly 40 mills in North America now make newsprint that boasts anywhere from 30 percent to 100 percent recycled content.

New newsprint projects, meanwhile, are nonexistent in North America. Not only do these projects fail to generate the 15 percent to 20 percent internal rate of return required, they have trouble returning even the low (2 percent) cost of capital. Soft prices and finicky demand trends have thus forced producers to examine other markets for growth — primarily in value-added grades.

Terrible years

Indeed, 2001 and 2002 were terrible years for newsprint producers. Newsprint consumption dropped 15 percent from 2000 to 2001. In 2002, consumption fell below 10 million metric tons — the lowest level in 25 years. The culprits: weak advertising, poor circulation growth and migration to other advertising media.

Even as consumption has dropped, prices have remained stubbornly soft.

Pricing levels have oscillated between $430 a metric ton to $630 a metric ton for more than two decades — a range that never seems to match producers’ swings in labor, energy and benefits costs.

More recently, producers have been further affected by lower-cost imports flowing into Gulf and West Coast markets.

Finally, paper companies have failed to hold prices in the face of the massive buying power of major U.S. newspaper publishers. The top five U.S. newspaper groups now control more than 75 percent of all newsprint purchases as well as a significant portion of the FSI market, composed of lightweight coated (LWC) and supercalendared (SC) papers.

When these publishers decide to draw down inventories or build inventories, the whole market turns with them. Several mid-sized newspaper groups and even a few small ones have formed buying alliances in a bid to enjoy their own volume discounts. As a result, the newsprint distribution market is largely extinct.

To survive, newsprint suppliers are shifting production to other paper grades, including improved newsprint, SC, LWC and other machine-finished grades.

During this decade, mills will convert almost 1 million tons of newsprint production to SC and LWC paper — either by converting old equipment or by purchasing new equipment. In either case, mills face high investment costs and increased risk.

Among developments:

• Abitibi Consolidated Inc., which has seen newsprint production plummet some 500,000 tons worldwide, recently spent more than $35 million (U.S.) to upgrade its thermomechanical pulp line in Beaupre, Quebec, to manufacture improved newsprint earmarked for FSIs and covers. Abitibi also purchased a new supercalendared machine for its recently acquired Lufkin, Texas, plant.

• Bowater Inc. has nearly completed conversions and rebuilds at three sites, allowing it to produce 1 million tons of coated paper, more than 25 percent of its annual output. New machinery at its flagship Cawtawba, S.C., mill is likely to target FSIs and magazines, while off-machine coating units at Midwest and Southern mills are aimed at catalogue printers. The company appears to be hedging its bets by tackling catalog printers while holding onto its big stake in newsprint. Bowater is also targeting the higher quality magazine and commercial printing markets with a line of brighter and matte-finished products as well as coated freesheet grades.

Making own changes

Other producers are making their own changes. Kruger Inc. is starting up a new lightweight-coated machine in Quebec, adding 220,000 tons to its groundwood and packaging capability. Its focus on high-quality production has garnered accolades from customers, including Knight Ridder Inc.

Finland-based paper producers Stora Enso and UPM-Kymmene, two late arrivals to the North American market, are putting the brakes on their paper production through planned outages and machine retirements.

The companies have cut investments and eliminated nearly 500,000 tons of capacity over the past two years.

Madison Paper transformed an Illinois site to LWC paper production to complement a sister SC facility in Maine, while its parent, Finland-based Myllykoski Corp. exports similar grades from Finland and Germany.

Independent paper producers such as Great Northern Paper Co. and Gasperia struggle to gain financial backing to pursue their coated paper projects.

Coated paper giants Sappi Ltd. and International Paper have trimmed their production of commodity groundwood-based grades while fighting hard to build coated freesheet in the face of an import storm. With the United States now importing more than 1 million tons of coated groundwood reels and an equal amount of coated freesheet each year, the market for exported coated paper is wide open.

European and Asian mills seem destined to fight with domestic producers for market share of a very mature market (magazine and catalogue publishing, commercial printing), leaving an amazing vacuum in newsprint markets.

Staying the course in newsprint

Despite the market’s woes, there is no chance that newsprint giants Abitibi, Bowater and Kruger will leave the business altogether.

Their diversification plans are largely complete and their next move is likely to replace their newsprint machines with newer, faster models once new production technology has been proven in Asia and Europe.

These new machines would allow North American producers to match or even exceed the capacity of Asian and European mills, which can exceed 2,000 meters per minute. Some observers believe mills can top 3,000 meters per minute if drying requirements can be met.

By contrast, film coating groundwood basestock is now possible at 1,000 meters per minute. Higher speeds, to 3,000 meters per minute, may be achieved once new spray coating and drying applications emerge.

Moreover, mills such as Alberta Newsprint and J.D. Irving Ltd. continue to invest in technologies and equipment that allow them to produce good quality standard newsprint.

NSI, the world’s second-largest producer of newsprint, is also investing in North America.

Its Canadian operation, for example, is producing low-weight, high-quality newsprint U.S. publishers are demanding.

That need has presented mills with a daunting challenge: to make paper that can run on high-speed presses without suffering web breaks.

NSI’s solution is to concoct newsprint that boasts less fiber, but fiber of higher quality. To that end, its newsprint ranges from the 48.8-gram-per-meter standard to specialty newsprint of 45 gsm and 43 gsm.

Fortunately for NSI, the company’s tree farms boast strong, bulky fibers that provide good stiffness even at lower weights. The company also makes paper in neutral or alkaline conditions, allowing NSI to use calcium carbonate in a bid to produce papers with high brightness, low weight and acceptable strength.

Michael Ducey is an independent business and technical writer serving the paper, printing and converting industries. He can be reached via e-mail at paperinfo@excite.com