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Prices for deliveries of newsprint in January have increased to all-time highs amid a market suffering from extreme undersupply and production costs – particularly gas – that continue to rise.
The new price levels are putting the graphic paper industry at serious risk some market commentators say, arguing that they will kill demand and push small publishers to further digitize their products, while small printers will not be able to compete, given such tremendous input costs.
The capacity closures that occurred during the course of 2020 and 2021 coupled with difficulties in production due to lack of paper for recycling (PfR) has meant a significant decrease in newsprint supply in recent months, leading to an extremely tight market. In Q3 last year, UPM handed over its Shotton newsprint mill in the UK to its new owner, Turkey’s Modern Karton, which started the conversion of the mill’s PM 2 to recycled containerboard (RCCM) production, while Stora Enso closed the improved newsprint PM 10 at its Kvarnsveden mill in Sweden. The closures resulted in a total of 450,000 tonnes/yr of newsprint being removed from the market.
Those closures, along with the shutdown of two other paper machines, one by SCA which exited the graphic paper market, and Stora Enso’s PM 3 at its Hylte mill, resulted in a total decrease in European newsprint capacity of almost one million tonnes/yr.
According to data from EURO-GRAPH, the European Association of Graphic Paper Producers, total European newsprint shipments fell for the first time in months in October, when they dropped by 6.4% year on year to 393,000 tonnes. Deliveries to Europe sank by 6.6% to 304,000 tonnes while those to outside Europe slid by 5.5% to 89,000 tonnes. European newsprint demand dropped by 7.5% to 313,000 tonnes during the month.
Total European deliveries of newsprint sank by 3.7% on a year-on-year basis to 4.1 million tonnes during the first 10 months of the year, while newsprint demand fell by 3.6% to 3.1 million tonnes during the period.
Shortly after the implementation of a round of price increases in July, newsprint producers started to feel additional pressure from input costs, first on the PfR side and then in terms of energy costs. And, while production curtailments and downtime due to lack of PfR continued, improved newsprint producers also had to reduce their output because of a lack of bleach. In this situation, several newsprint suppliers started to implement further upcharges on newsprint deliveries.
Between August and September, a number of producers including Perlen Papier, Papierfabrik Palm, Norske Skog and Stora Enso, announced their intention to implement either price increases or raw material/energy surcharges from October at the latest.
In October, newsprint prices rose by at least £40 per tonne in the UK and by up to Euro 80 per tonne in continental Europe, at least at the higher end of the range, although some paper suppliers reportedly decided to stick to their six-month contracts.
Newsprint prices jumped again in November as more energy surcharges were applied during the month. Prices for standard 45-g newsprint in the UK rose by a further £40 per tonne on the higher end of the range, hitting £535 per tonne, while reaching Euro 630 per tonne in Germany and France and up to Euro 655 per tonne and Euro 700 per tonne in Italy and Spain, respectively.
Between the end of November and the beginning of December, most negotiations for deliveries in 2022 were concluded at considerably higher prices. For the first time, in most cases, producers and buyers decided to set the validity of prices at three months only, while some six-month contracts were also sealed. In some cases, prices with one-month validity were also agreed upon.
Nevertheless, continued increases in gas prices forced paper mills to impose further hikes or surcharges on the recently agreed prices. Shortly before Christmas, one paper producer announced that a Euro 75 per tonne increase would be applied on top of the recently agreed prices for newsprint and supercalendered (SC) paper deliveries from January. At the beginning of the year, Norske Skog said it would implement a Euro 95 per tonne surcharge on newsprint shipments from its Bruck mill in Austria from January 10, while Holmen also announced a similar price hike due to increasing energy prices.
Both price negotiations and the implementation of the surcharges went relatively smoothly as the lack of newsprint simply thwarted buyers’ chances to strike better deals. Negotiations instead focused on volume allocation for this year. “The biggest challenge is to secure volumes for [2022]. As for paper prices, there is no discussion whatsoever,” one market source said in November. “There is no big space for negotiation and no possibility to change suppliers or to order more quantities. All suppliers only offer us the same volumes we bought [in 2021], and you have to be happy if you get those,” another one said.
Prices in the UK for standard newsprint coldset 42.5-g paper rose by £140-150 per tonne to £550-700 per tonne for deliveries in Q1 2022, corresponding to a 70.1% increase year on year. Similarly, improved newsprint prices grew by £120-130 per tonne to £575-735 per tonne.
In Germany, newsprint 45-g prices rose to Euro 650-780 per tonne, while improved newsprint prices increased to Euro 690-820 per tonne. Newsprint 42-g prices in France reached a level of Euro 675-840 per tonne, and initial indications suggest that a similar price level might have also been reached in Italy and Spain.
Most market participants agree that the price increases will have a knock-on effect on newsprint demand, as many small- and medium-sized publishers and printers cannot afford the current prices.
“It’s going to cause damage. It’s going to be difficult for publishers to continue at these price levels,” one market source told Fastmarkets’ publication PPI Europe. “We’re certainly in a different era. We’re in a situation where the mills are not prepared to go back to posting losses for paper production. When they see prices returning to a level at which they are losing money again, they will close or convert assets,” he added.
“It’s a very unpleasant moment for all of us. Honestly, I’m wondering whether these guys really need these price increases or if they are taking advantage of the situation,” another source said. “We are like boxers in a corner, and we are taking punches from paper mills. But, in a while, they will be fighting alone. With these price increases, I do not know how many people will still find it profitable to print,” a third source said.
Despite the fact that most market players expect newsprint demand to be hit hard because of the current prices, many of them agree that the shortage of paper will continue, at least in the first half of the year. Logistics problems and production issues linked to strong demand, gas prices and PfR availability are causing issues with deliveries, and lead times are now well into March, and sometimes beyond. In some cases, some Q2 deals have also been concluded. Most market players think a lot will depend on how much demand declines in the next few months.
“Customers are not increasing their paper orders because there is no more paper available, but they are not reducing volumes either at the moment,” one market source said.
“The problem is that customers are still ordering the same volumes as this year but they will most probably reduce consumption in 2022. They want to make sure they have the volumes [they need], so they do not want to reduce the volumes that producers give them. They will order 100 [tonnes] to get 80. And it’s only when they increase their stocks that they will reduce their orders. It will take some months,” another one told PPI Europe in December.
Meanwhile, some newsprint buyers have already taken action in order to try to offset the increase in paper prices. In France, the newspaper publisher Groupe Le Monde increased the cover price of its Le Monde newspaper by Euro 0.20 as of January 4, and so did the Groupe Centre France for its daily and weekly newspapers.
On the printing side, German publisher Funke Mediengruppe permanently closed its Erfurt printing site at the end of November last year. The printing site used to produce newspapers, advertising leaflets and catalogs among other products, and used to process over 140,000 tonnes per yr of newsprint. Also in Germany, newspaper publisher Boyens Medien closed its printing plant in Weddingstedt-Borgholz at the end of Q4 last year.
On the supply side, more newsprint capacity will be taken out in 2022. At the beginning of December, Slovenian manufacturer Vipap Videm restarted newsprint production on PM 3 and wrapping and packaging paper production on PM 2 at its Krško mill. The company had stopped production at its 210,000 tonnes/yr mill in July last year due to a technical problem. Although the problem was resolved in August, the firm did not manage to restart production as it needed working capital. At the beginning of November, the District Court of Krško, Slovenia, began a compulsory settlement procedure against the firm after receiving a request from one of its owners, the Czech Republic’s Vipap CZ. The firm’s aim is to restructure the company and to move away from graphic paper production and into packaging paper.
In Q1, Spain’s Papresa will convert PM 5 at its Rentería mill to RCCM production, reducing newsprint capacity by 110,000 tonnes per year.
In Q4 this year, Norske Skog will also enter the RCCM market when it starts up the converted PM 3 at its Bruck mill in Austria. The PM currently produces 128,000 tonnes per year of newsprint.