Big drops in classified lineage and big increases in Internet spending forced U.S. newspapers to dramatically reduce their newsprint consumption in 2007 and 2008 isn’t shaping up to be much different.

Between 2006 and last year, newsprint consumption fell about 800,000 tons and 2008 indications look equally grim, with demand already down another 15 percent, according to the Pulp and Paper Products Council.

 

Contributing to the downturn: declining print circulation in combination with narrowing web widths. The 50-inch-wide newspaper is rapidly being replaced by 46- and even 44-inch-wide formats, with some papers rolling out even more compact sizes (see related story, page 8).

All the newsprint suppliers are feeling the shock waves caused by the market’s continuing contraction.

In response, last year, the two largest producers, Abitibi Consolidated Inc. and Bowater Inc., joined forces to create AbitibiBowater. White Birch Paper Co., meantime, snapped up SP Newsprint after Cox Enterprises Inc., Media General Inc. and McClatchy Co. decided to get out of the newsprint business.

Canadian producer Catalyst Paper picked up a U.S. manufacturing site when it purchased the Snowflake, Ariz., mill formerly owned by Abitibi while Tembec, another provider, ran into financial difficulties.

Foreign producers UPM and Stora Enso moved further away from the North American newsprint and graphic papers landscape and smaller producers like Fraser Papers, Boise Cascade LLC, Blue Heron Paper Co. and Katahdin Paper Co. LLC retrenched as well.

That left only the low-cost producers, among them Atlantic, Alberta Newsprint, Kruger and Inland, which have thus far avoided the big hurt resulting from the decline in demand.

Pricing in flux

Though inventories remain over 45 days in supply, newsprint prices are on a steady incline after a roller coaster ride last year, exceeding $687 per metric ton for 27.7-pound (45-gram) paper last month, according to FOEX Indexes Ltd. Prices could easily top $700 per metric ton by summer, observers say, adding that little relief is in sight, as mills react to enormous cost and currency pressures.

Publishers will want to keep a close eye on the financial underpinnings supporting AbitibiBowater. The newsprint giant, whose capacity alone could satisfy U.S. demand, needs to meet challenging debt-repayment terms associated with a $1.4 billion refinancing plan it announced in March.

The firm will likely cut jobs and additional mill assets to meet its obligations, which include annual interest payments in excess of $550 million. Look for AbitibiBowater to cut at least 1 million metric tons of capacity this year, even as it converts assets away from standard newsprint grades to value-added grades such as its successful EqualOffset and lightweight-coated grades for magazine and FSI use. The company is likely to be very aggressive on pricing and market share for some time.

The acquisition of SP Newsprint by White Birch, announced in January, by contrast, should result in less market upheaval. Both companies have solid newspaper industry roots and, consequently, share a common production goal.

That may not be the case with Catalyst’s purchase of the Snowflake, Ariz., recycled newsprint mill. The company appears to be trimming some newsprint capacity after a difficult financial year and subsequent restructuring of management and assets. The mill had been a top performer for Abitibi over the years, but in 2007 the facility’s operations were hampered by poor execution and high costs. Catalyst has taken steps to reverse the mill’s ebbing performance with upgraded machinery.