Wednesday, January 7, 2009

Which Dies First? Demand for Newsprint or Production of Newsprint?

There’s a distinct possibility that what may ultimately kill major newspapers will be totally unrelated to anything electronic. It’s a possiblity that a shortage of newsprint may kill more newspapers than a dramatic shift to online.
* The permanent closure by the end of the first quarter of 2009 of the Grand Falls, Newfoundland and Labrador newsprint mill, representing 205,000 metric tons;
* The permanent closure by the end of 2008 of the Covington, Tennessee paper converting facility, representing 70,000 metric tons of coated grades;
* The immediate idling, until further notice, of the Alabama River newsprint mill, in Alabama, representing 265,000 metric tons;
* On a revolving basis, approximately 20,000 metric tons of monthly newsprint downtime at other facilities across the organization until market conditions improve.
Consumption of newsprint in North America will continue to fall. The Far East consumption of newsprint may increase, but that does nothing to help North American mills. As this develops, machines are being changed over to more profitable higher grades of papers.
At the same time, newspapers are shrinking. Not only are pages getting fewer, they are getting smaller.

A price decrease was just announced.

Normally a good thing when newspaper bottom lines are hurting. But for a business that is totally dependent on one raw material - with absolutely no alternative on the horizon - keeping those suppliers healthy is critical.
Like a the automakers, the newsprint makers are looking to liquidate assets. AbitibiBowater will sell it’s hydro-electric plant, for example, in order to free up cash.
If newspapers aren’t careful, they may save so much newsprint, the manufacturers may decide to cut production even more.
I think this is called a esculating downward spiral. Demand down, raise price, demand declines more, reduce production, raise price, demand falls further…
I only hope that more major metro papers follow the Detroit Free Press model. At least it will free up some newsprint for us little guys.


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