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Paper Pricing's Wild Ride
Hold the maalox! 'manageable' newsprint price rise predicted
Newsprint prices historically ride a roller coaster, tempting buyers and sellers alike to reach for the antacid bottle now and then.
In the early 1990s, an economic slump and overcapacity of newsprint dragged prices down. But in 1994, a year publishers would just as soon forget, a series of industry price hikes began. At their peak, prices were up 67%, then leveled off.
Prices surged again in late 1997 and 1998, due mainly to restricted supply resulting from strikes at Abitibi-Consolidated and Fletcher Challenge mills.
Last year, producers clutched their stomachs as prices plummeted as much as 20%, hitting a five-year low.
The ride may be getting smoother. Some newspaper and newsprint analysts predict that while prices will rise in the next few years, those increases will be more modest than those of the past.
Consolidation among newsprint producers should bring about more restrained price hikes, PaineWebber predicted in a Dec. 1 publishing research report. PaineWebber looks for 8% to 10% growth in prices in 2000 for an average price of $553 per metric ton.
Analyst Kevin Gruneich of Bear, Stearns & Co. forecasts a 9% to 10% increase this year and more modest growth in future increases, due to reduced usage and trade trends.
"The move to the 50-inch web width and [the] fact that it's become a global market bodes well," Gruneich says.
For this year, analysts say the increase will be a typically slow one in the early part of the year, when newsprint usage is generally low, then pick up in the second half.
Demand, one factor in pricing, is healthy. The worldwide economy is improving, and Asia is recovering from its economic crisis. While circulation is essentially flat, newspaper ad spending in the United States - the world's largest user, accounting for 32% of overall newsprint demand - is predicted to remain strong this year. Political and summer Olympics coverage this year also should boost newsprint usage.
At the same time, consolidation in the newsprint industry is leading to reduced capacity. Today, the top three manufacturers produce 52% of all North American newsprint, up from 29% just five years ago, according to PaineWebber.
For those reasons, PaineWebber forecasts continued price increases over the next few years. …