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Newsprint prices take a U-turn; publishers seek further correction

Newsprint prices take a U-turn; publishers seek further correction

Author | Noor Fathima Warsia | Friday, Dec 26,2008 6:35 AM

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Newsprint prices take a U-turn; publishers seek further correction

Newsprint prices, which were a serious concern for the publishing industry in early 2008, are finally seeing a much hoped for decline, or as the media houses put it “correction” in rates. Even as there has been an 18 per cent to a 25 per cent decline in the rates over the last two months, most media houses have said that this drop doesn’t bring any relief given the current economic slowdown period.

A recent ICICI Securities paper on the media sector, prepared by Vikash Mantri, CFA and Suchitra W L from ICICI Securities, stated that “newsprint prices sharply declined 18.4 per cent month-on-month in November 2008 with ex-factory cost of domestic newsprint dipping to Rs 31,000/MT from Rs 38,000/MT. Internationally, newsprint prices are witnessing pressure, despite production cuts announced by AbitibiBowater, North America’s largest newsprint producer. On account of declining newsprint demand (down 18% YoY & 5% YoY in the US and Europe respectively in October), AbitibiBowater has decided not to push through US$20/MT price hike as was planned for December ’08. The decline in newsprint prices signals a trend reversal with significant demand erosion in the US and Europe, and reduction in raw material, energy and transportation costs. We expect listed publishing companies – HT Media and Jagran Prakashan (JPL) – to be major beneficiaries.”

Pratap Pawar, Managing Director and Managing Editor, Sakal Papers put things in perspective here, and said, “Newsprint is one of the major costs for any publication. The earlier rates had allowed us to maintain cover-prices or increase them slightly enough for the consumer to not mind. Things like cutting down on length and width of a paper kept the consumption of newsprint in control. Due to the increase of over 50 per cent in newsprint rates earlier in the year coupled with the drawback that newspapers could not raise cover prices led everyone to lose heavily in the year. This alongside the economic slowdown saw newspapers undertake severe cost cutting steps.”

Drop welcome, but lost in conversion

Bombay Samachar’s Hormusji Cama, who is also the President, Indian Newspapers Society said, “The prices were jacked up by 70 to 80 per cent earlier in the year, and the drop has been by only 20 per cent. This really does not make much of a difference for anyone.”

One reason why the decrease in the rates has not elated any spirits is the dollar-rupee equation. Ashish Bagga, CEO, India Today Group explained, “Decline in newsprint has only started to happen. Since most of the newsprint we use is imported, and there is a lag in order and receipt or consumption, much of the impact would start coming in towards the new financial year. USD, on the other hand has strengthened although expectation in the medium is that of Rupee appreciation. We would get a realistic impact of newsprint correction only if the Rupee appreciates, as otherwise the correction in newsprint prices would get negated by Rupee depreciation.”

Outlook Group’s Maheshwar Peri echoed the view, and said, “Any reduction in prices would help but this is too little. The decrease in prices has mostly been offset by the rising Dollar and the depreciating Rupee, and as you know, the Rupee has depreciated by almost 20 per cent.”

Newsprint demand drop expected to continue

The increase in competition brought in a ‘fear factor’ amongst publications, where companies were going to any lengths to ensure an adequate supply of newsprint. Mayar Group’s Chairman and Managing Director Ajit K Sud observed, “Many media houses have been buying newsprint in bulk and storing it, and that too had played its part in increasing the rates. The rates would go down further in the first quarter of 2009 but I see it picking up again after that.”

The publishers too believe that the rates would go down further in the coming months. Decrease in demand is one of the reasons seen for that. In the recent past, not only were many print projects put on hold, but many media houses cut down on the number of pages and on the number of their editions as well. Cama explained, “When newsprint prices were raised, our simple advice was that even though we cannot control prices, we can control pages, and cut our consumption. All the mills that were riding on high horses had to eventually step down.”

Bagga on the other hand said, “If the correction is large, newsprint producers adjust capacity to demand as mills running in losses are shutdown. In the short run, therefore, lesser demand will have some impact on prices until the correction in supply happens.”

Prices U-turn meaningless unless economy turns around

The bigger concern that is giving sleepless nights to the industry is the current slowdown period, where most organisations are facing serious cash crunch. Cama said that the situation may even see a snowball effect where the slowdown would further reduce the number of pages. This would bring down the newsprint demand, and hence it rates, even further.

Pawar elaborated that unless the economic situation doesn’t resolve, the drop in newsprint had very little value. Peri agreed, “The prices are likely to fall further if the slowdown continues. And if that happens, the bigger problem would be the slowdown, as all of us would get affected on the revenue side.”

The publishers have much on their plate to tackle at present. Industry observers like Sud stated that the drop in the newsprint prices were irrelevant in the first quarter in any case since many have stacked up their requisites. Media houses believe that the prices are still not adequately “corrected” and must drop further, even if it is not realist to expect them to drop to what they were earlier. All said however, the drop in newsprint rates, is one of the few good news that the print industry has heard in recent times.

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