Crystal ball 2020: newsprint market predictions

My grandfather was both a farmer and a pilot, and understanding the weather was important for both of those occupations. As a kid, I was fascinated by his explanations of the various cloud formations and winds, as well as what each meant for the weather that was headed our way.

 

By Tony Smithson regional director, printing operations for APG Printing Solutions

From NNA

 

The newsprint market isn’t quite as complex as weather systems, but there are still signs we can look at to see what they say about the future.

All of the industry insiders I spoke with for this column agreed to share their predictions on a condition of anonymity, a practice that I’m sure all publishers reading this will appreciate.

One prediction that all of the sources agreed on was that the newsprint market will remain soft in 2020. A soft market means that supply is outstripping demand, leading to stable or falling prices and reliable deliveries.

Several factors were cited to explain the current softness and its continuation well into the new year.

Strong production numbers from the mills in 2019 led to high mill inventories. Mill inventories are the amount of newsprint that a mill has on hand that has not been sold. In response to high inventory levels, most mills took planned downtime. Some mills announced market-related shutdowns, while others announced shutdowns for “planned maintenance,” while still others quietly shut down for a week or two without announcing anything at all.

One source suggested that many mills had waited too long to take down time. “We have inventory levels like we’ve never seen before, and some guys are just now taking downtime,” he said.

Regardless of any steps taken to limit supply, sharply falling demand was universally cited as a reason to believe that market softness will continue.

Demand from daily newspapers has been falling by double-digit percentages for years now, but a new trend has emerged. Over the first eight months of 2019, non-daily consumption of newsprint, including both weekly newspapers and commercial printing, showed steeper than expected drops. Commercial printing has acted as a moderating factor on consumption drops in the past, as advertising inserts moved from glossy paper stock to newsprint, but it appears this practice has slowed considerably.

Another factor that will contribute to falling demand in 2020 is the elimination of publishing days by daily newspapers. “I think you’ll start hearing announcements of frequency reductions in the first quarter,” said one industry insider, “and once they start, the floodgates will open.”

As always, the international markets will have an impact on what happens to us in North America.

“Even in this soft market,” one source said, “we still have the highest newsprint prices in the world. That makes our market attractive for producers, particularly like folks in Russia who have been selling for $400 per metric ton or below.” [Note: $400 is around 60% of the current North American price.]

Low prices overseas also mean that North American producers are unlikely to find a market for their excess paper in exports, so even more newsprint tonnage is left for the domestic market.

All sources had predictions as to how newsprint suppliers would react to the soft market. Most agreed that additional mill closures are inevitable, with some predicting two or three machines being permanently shut down during 2020.

Resolute Forest Products’ recent closure of their Augusta, Georgia, mill was described as an example of what is to come. Augusta was designed as a two-machine mill, and after one machine was shuttered several years ago, the mill attempted to cover the costs of the whole mill on just one machine. That proved to be just too much of a financial challenge in the current market.

Many sources also cited the Augusta closure as an example of a U.S. mill at a disadvantage because of the continuing weak Canadian dollar. With Canadian mills able to make a significant amount of profit simply on the exchange rate, many predicted that U.S. mills will find it difficult, if not impossible, to compete.

While the soft market is almost sure to continue for at least the first half of 2020, there are some possible storm clouds on the horizon.

Several sources cited the risk of unfortunate timing when production capacity is taken out of the market. Although removing two or even three machines could bring the market back into balance, if too much capacity is taken out of the market too quickly, the market could be disrupted, causing prices to spike.

“We could have a repeat of the conditions that caused prices to spike in 2018,” one source said. “If we’re lucky, the timing will be better this time.”

This time, of course, we will be watching the skies closely.

 

Tony Smithson is the regional director of printing operations for Adams Publishing Group’s APG Printing Solutions.