Newsprint Price Hike Slated; Publishers Balk

NORTHERN Pacific Paper Corp. newsprint plant in Longview, Wash., runs flat out, 24 hours a day, 365 days a year, turning a mix of wood chips and recycled paper into new newsprint.

Anyone watching the paper slide off the line in one-ton rolls would be forgiven for thinking that business is booming. But, despite two years of rising prices, that is not entirely true. Newsprint consumption is down and is expected to stay soft. Some industry executives describe profits as satisfactory, not stellar.

Further hikes in newsprint prices have been set for this spring, bringing cries of anguish from newspaper publishers around the country, who spend 20 percent or more of their total budgets for paper on which to print the news.

The big question now is whether prices will really continue to climb in 1996, despite the announced increases.

"They've been announced, I don't know if they'll go into effect," says Barry Polski, spokesman for the American Forest & Paper Association, the Washington-based industry group that represents some 400 wood and paper manufacturers.

"There's a 50-50 chance they may not hold," adds George Haloulakos, who heads Spartan Research and Consulting Inc., in Bellevue, Wash. "They won't be able to make the whole price increase stick."

The reasons are that newspapers are committed to using less paper (consumption was down by more than 5 percent in 1995) and inventories are high - 43 to 46 days' supply - as publishers stock up in advance of price increases.

Larry Katz, a forest-products analyst at Pacific Crest Securities in Portland, Ore., suggests that by announcing price increases, newsprint producers may be hoping to deflect downward pressure on prices.

"Newsprint prices are at a peak, unlike other grades of paper, which have been falling," Mr. Katz says.

Newsprint prices are climbing because the balance between supply and demand is much closer than for other types of paper, industry sources say. When prices were low a few years ago, a number of newsprint producers closed down. There are now 19 companies making newsprint at 25 mills in the United States, and no more plants are planned.

"There is no new supply in North America," says Mr. Polski of the American Forest & Paper Association. Newsprint now sells for $750 to $760 a metric ton, up from $550 to $560 a year ago. This spring's increases are slated to boost prices 5 to 7 percent.

The sharp jump in newsprint prices has been a serious blow to many of the nation's newspapers, already struggling with soft advertising revenues and competition from new media.

"It's been just devastating, in many cases," said Mark Daley of the National Newspaper Association. The result, he says, has meant smaller papers, delayed investment in equipment, and reductions in circulation areas - a cost-cutting measure recently announced by The Rocky Mountain News in Denver. Another result, Mr. Daley says, has been staff layoffs. Last week, the Providence Journal-Bulletin became the latest to join this trend, announcing 100 jobs would be cut.

The US Justice Department has been investigating whether the price surge stemmed from anticompetitive practices by newsprint producers.

Jim Keller, Weyerhaeuser Company's vice president in charge of newsprint, defends the price increases as simply a rebound from depressed prices in the early 1990s. The mill in Longview, the Northwest's biggest, is a joint venture between Weyerhaeuser and Nippon Paper Industries Japan.

"The industry is now back to a level of profitability," Mr. Keller says. "But the returns are still at a barely acceptable level, we're not rolling in money."

He forecasts only modest growth in newsprint sales in 1996, in the 1.5 to 2.5 percent range. "The election year creates some additional consumption," he says, "and the Olympics will contribute to growth."

But at the same time, American newsprint may face increased competition globally as new mills open up in South Korea, Malaysia, China, and India. These mills will not export their output to the United States, but will sell paper in what have traditionally been export markets for American mills. Demand in those markets is also growing, which could offset the increased capacity.