Newsprint Suppliers Scale Back

 It's a cycle as predictable as the paperboy's daily delivery -- a strong economy brings more newspaper advertising and therefore greater demand and higher prices for newsprint, while a downturn means excess capacity and a temporary cut in production.

This time, though, the leading newsprint supplier, Abitibi-Consolidated Inc., is shutting down some mills and paper machines for good. Analysts say the move to scale down reflects the mature nature of an industry that may be past its prime.

``I wouldn't say it's a dying industry, but it has very little growth potential,'' said Andrew Battista, senior economist for Resource Information Systems Inc., a consulting firm for the forest industry. ``Peak production is a thing of the past.''

Analysts blame a number of factors, including technological, economic and social ones, for the gradual slowing of demand for newsprint.

North America's peak annual demand was 13.5 million metric tons in the late 1980s. Then came the recession of 1991, which ``crippled'' consumption, Battista said, but even once the recession ended, newspaper circulation never came fully back.

The Internet boom that increased advertising demand helped bring newsprint consumption back to 13.2 million tons last year, but with that bonanza over and circulation continuing to slip, market conditions are particularly difficult for newsprint makers right now.

The overall slowdown in the economy is also dragging newspaper advertising volume lower, while energy costs for running the mills and plants have jumped. Battles to maintain newspaper readership against competition from television and the Internet only get more challenging with time.

Add to that a consolidation in the North American newsprint industry by Abitibi-Consolidated, which became the planet's biggest producer with major acquisitions in 1997 and 2000.

Part of the former Abitibi-Price Inc. plan in merging with Stone-Consolidated Corp. and then taking over Donohue Inc. was to stabilize the production cycle. In part, that means shutting down older, less efficient machines with the goal of halting the stop-and-start cycles needed to keep supply synchronized with fluctuating demand.

``Some so-called experts say it's a mature market and the expectations for the next five years are slightly declining or flat,'' Abitibi manager of public affairs Denis Leclerc said. ``So we have to face that situation. That's why we're permanently closing mills and machines.''

Since the Donohue acquisition last year, Abitibi-Consolidated has cut production by 400,000 metric tons. It also announced last week it would permanently shut down one of three newsprint machines at its Kenora, Ontario, mill and idle the other two for the summer, cutting 147 jobs and putting 333 others temporarily out of work.

Abitibi-Consolidated also is in talks with the union representing mill workers about shutting down a machine dating back to 1915 at Iroquois Falls, Ontario, which would eliminate scores of jobs.

Leclerc said complaints from publishers about a previously announced $50 per metric ton increase in the newsprint price of about $600 per ton caused Abitibi-Consolidated to cut the increase in half.

``We saw their figures. The economic slowdown was greater than expected,'' he said. ``It's sad to say, but it's the normal course of action after such a positive economy.''

In the opinion of Cec Makowski of the Communications, Energy and Paperworkers Union, the massive consolidation of the newsprint makers also has a great deal to do with the cutbacks.

He noted that Abitibi-Consolidated was the only major producer announcing permanent shutdowns and layoffs instead of the ``tried and true'' industry practice of temporarily halting production in tough times.

``What's different this time is that rather than taking the downturn across their system and spreading the pain around, they want to take capacity off permanently,'' Makowski said.

Ross Hay-Roe, managing director of Equity Research Associates, said the Abitibi-Consolidated cuts came in response to a long-term decline in demand, while the current economic slowdown exacerbates the situation by causing what could become the worst cyclical drop in consumption since World War II.

``It's unfortunate they are trying to recover at such a difficult time,'' Hay-Roe said. ``The newspaper business looks like it's over the hill.'' Associated Press.