Australia’s newsprint imports were 31% lower year-ended September, slumping to 70.7 kt from 102.1 kt the year prior. Amidst the import slump, itself driven by continual demand pressures, the real story is the emphasis by manufacturers on re-setting prices, on more favourable terms. This is a global phenomenon. Source: IndustryEdge
There are local ramifications. After many years of being perennial price takers in a falling market, global newsprint producers have flexed their remaining commercial muscles in the fourth quarter of 2021. Confronting huge energy and freight cost increases and spiralling input price inflation, they have weighed the commercial balance and are pursuing very large price increases.
In Europe, as with other markets, supply and demand are closer to being in balance than appears to have been the case for more than a decade. A modest recovery in demand has brought the demand and supply factors back together, providing newsprint producers with a rare price correction opportunity.
Some argue this may be the producer’s last such opportunity because demand will inevitably shrink again. Others consider price increases – especially those of some magnitude – will hasten the declines as advertisers reject cost increases, requiring publishers to absorb higher print costs or accelerate the migration to digital. Local supply of newsprint is caught in the global vortex.
IndustryEdge’s international colleagues consider the Australasian market to be unique for its long and deep relationships and the long-term nature of the supply contracts that have operated for the majors.
Some element of that relationship may continue, but prices will be increasing, without doubt. There is no option with newsprint – supply must be maintained on a more-or-less daily cycle. Regionally, just one mill remains (Norske Skog’s Boyer mill in Tasmania). It could be argued a publisher would be brave to rely entirely on imported supply in any situation. Especially so when the region’s tyrannies of distance are compounded by ever-worsening supply chain and shipping disruptions.
If local newsprint production ended, IndustryEdge’s assessment is that would hasten the end of print. We base this assessment largely on the moderation of prices we observe for imported newsprint. The relationship between the local supplier and publishers restrains import pricing in a manner uncommon in other markets.
The chart below shows newsprint imports and recent prices.
Australian Newsprint Imports: Jan ’17 – Sep ’21 (tpm, AUDFob/t & AUDCif/t)
Of relevance is that the differential between the free-on-board (Fob) price on the black line and the landed (Cif) price on the red line has been expanding. This is due to the shipping and freight disruptions and cost increases that are infecting global trade right now.
In September, the cost of freight was AUD130/t or 15.3% of the total landed cost. Now that the New Zealand mill at Tasman is closed, supplies from New Zealand have ended. There are some options in Indonesia and observably, some elsewhere in Asia. But the market is tight in a manner not seen in modern commercial memory.
As New Zealand has exited the market, others have filled something of the breach – though the aggregate import decline has dampened the mood. Canadian suppliers have also backed away, we understand that is in part because they are agog at the prices they are achieving in Europe.
Whether the Asian or Scandinavian producers will expand their positions in Australia is an open question. Below we can see that for the most part, the Scandinavian producers are able to deliver more cheaply than their Asian counterparts. That could however be transitory, and it may be that imports will continue to decline because the challenges of supplying the local market are too significant.
Especially compared with the opportunities in Europe and some parts of Asia where prices continue to be strong and appear to be strengthening. In a market where prices are rising, the declining Australian import prices speak to the importance of the local manufacturer. Equally, the current import prices are for goods shipped in August and ordered months before. We can expect to see the imported newsprint prices rising in coming months. The real question is how far newsprint prices will rise.
