A definition of newsprint is the substrate on which news is commonly and economically printed. Print itself encompasses media with advertising distributed in physical form. Advertising, subscription and circulation are part of the product and contribute to the increase or decrease in newsprint consumption. This is the first of a series of collaborative columns written with inputs from a business associate who is a leading industry researcher and consultant in logistics and newsprint.
For the first time, India and the world, are faced with a large number of simultaneous negative situations including the Coronavirus outbreak. The latest news is that Russia, too, joins the comprehensive list of stricken countries and regions where business and everyday life are coming to a standstill!
The price of crude oil price has slumped from US$ 54 to US$ 25 a barrel in the 20 days from 1 March 2020 to 20 March 2020. Largely a consequence of excess demand in the face of halting economic activity, it is a power play to control the price and production of this crucial commodity by major producers Saudi Arabia and Russia.
The Indian Rupee is now at its all-time lowest exchange rate in comparison to the US dollar. Its value has declined to 75 Rupees to the US$.
Most of the bourses around the world have crashed. They are amid an unprecedented correction, fall, or very bearish phase similar to the crash of 2007-2008 and as bad as the crash of 2002 and 2003. The global stock market crash includes the Nikkei, the Shanghai Stock Exchange, the KOSPI, the Hangseng, and the New York Stock Exchange. This steep correction of more than 40% encompasses the Indian Sensex and Nifty and the European CAC, DAX and FTSE exchanges and indices.
Newsprint demand falls in India
On top of all this, there has been a substantial fall of 30% in the Indian demand for newsprint. The indigenous production of newsprint has fallen even more by 40% due to the rapid closure and limited financial resources of the newsprint manufacturers. The reduction in the availability of recycled fiber (RCF) essential for newsprint production, tight environment controls, has led to the switch-over of mills and even existing machines to other paper grades. Writing and printing grades and containerboard are more remunerative and lucrative than newsprint.
Examples of Indian newsprint mills shifting to carton paperboard abound, such as Rama, Emami, and Khanna Paper Mills.
The closure of significant capacities of newsprint mills by shutting down or converting paper machines continues apace. In North America, Europe, Australasia, and South Korea, capacity has shrunk by over 1.9 million tons. An additional decline in newsprint production is expected in 2020.
A tsunami has descended on us with a vengeance. The current situation will call for every bit of resourcefulness by the Indian new publishers and newsprint buyers to weather the storm.
Let us examine the effect on the essential positive factors and constraints: supply/demand with a heavy fall in both; the reduction of customs duty from 16.5% to 10.6%; the anti-dumping duty inquiry instigated by Indian paper mills. The logistics implications including the availability of containers and cargo ships to bring newsprint to Indian ports. The devaluing Indian Rupee and dollar exchange rate; and the price scenarios from Q1 in 2020 to Q2, Q3, and Q4 in 2020. Finally, we suggest our inventory recommendations for the rest of 2020.
Supply and demand
There is a considerable fall in indigenous demand for newsprint by newspaper and magazine publishers due to the weak and sluggish economy.
- Ad revenue from the auto industry has collapsed for more than 20 months, and another mainstay, education segment advertising, has also significantly declined although edutech and online education (eLearning) advertising might pick up. Here the students are recruited online, but the parents are influenced by the credibility of newspapers to make the payments.
- There is a simultaneous and ongoing reduction of pagination, number of sections, editions, print centers, and circulation. There is also a drop in subscriptions and subscription revenue.
- As far as newsprint supply, there is the aforementioned newsprint manufacturing capacity reduction in 2019 by 1.35 million tons. Planned cuts by 0.5 million in 2020 include those of Chapelle Derby, Paperex, Poland, and Norske Skog, Australia. The switch from newsprint includes Korea’s Chonju’s capacity reduction and switch to writing and printing papers and containerboard. Korean mills have also been Coronavirus affected over the past 12 weeks. A similar situation and priorities prevail in Indonesian paper mills.
- Thus far, the production of newsprint in North America, principally the United States and Canada have continued unabated, the non-availability of containers poses a severe constraint. China-bound vessels do not return containers, and this is what exacerbates the problem of cargo shipments to India.
- India bound vessels either offload containers on barges that are towed to ports and then returned to the ships. Alternatively, the whole ship’s crew are checked for virus-free conditions and then allowed to either offload containers from vessels permitted to enter the harbors for unloading and return. The shortage of containers and the limited serial entry to port is a logistical bottleneck situation.
Initially, the recent reduction of duty on newsprint imported into India announced by the Finance Minister in her budget speech seemed a boon. It was achieved mainly due to the strong representation by the users via the Indian Newspaper Society (INS). The news publishers asserted that the quality of indigenous newsprint did not facilitate its use on the fast double-width automated web offset presses in which they had invested. Indian manufactured newsprint also suffered from a brightness factor of 48 compared with the 55 required for successful color reproduction. The Minister of Industries was convinced.
However, the new reduced duty structure introduces the condition that only registered users with RNI certification can import newsprint. It forbids those importers who used to import for stock sales from their godowns located at ports or near major printing clusters for supply to RNI approved news publishers or users. While these businesses facilitated Just in Time inventory practices this will no longer be allowed. Nevertheless, the reduced duty structure opens the road to sale of newsprint to the direct local agents of global manufacturers of approximately 500,000 tons of newsprint. Representing about 30% of total newsprint imports this rule is a welcome relief to these importers and their customers.
However, considering the twin effects of the Indian Rupee’s slide to 75 against the US$ and the expected price increases, the duty reduction will not mitigate the cost of imported newsprint. Imported newsprint prices are expected to continue rising to US$ 500 to US$ 550. That is, from the current rates for 42 gsm newsprint of US$ 380-400 to US$ 500-550 in 2020-21.
The breakup of currently used grammages is 75% of 42 gsm; 15 % of 40 gsm, while the balance 10% is of 45 gsm, which is also the grammage generally produced by the indigenous manufacturers. The INS will have to make further and stronger representations to the government to reduce customs duties further.
The threat of anti-dumping duty on newsprint imports hangs over all importers and news publishers. The inquiry in which all buyers have to respond to will include visits by Indian Commerce Specialists to the respective overseas mills accused of dumping newsprint in the Indian market below-market rates. The inquiry is expected to take 6 to 12 months.
The silver lining is that there will be a joint hearing held by the Commerce Ministry with the foreign and indigenous suppliers and customers represented by their batteries of senior lawyers. At this point, there seems to be some confidence amongst several of the leading imported newsprint suppliers. Although they are hopeful of winning their case against the levying of anti-dumping duty, it is still too early to lay bets on any likely result. If the Ministry insists that the findings of dumping are correct, an additional 10 % duty can be expected.
However, in the wake of the current weak economic scenario, there may be some softening of the government’s stand, as it cannot afford to or may not wish to alienate publishers at the current juncture. The government needs the media more than ever before, and this includes print, television, electronic, digital, and FM radio.
Indian Rupee variance at 75 to US$
This is linked to the all-round weakening of the Indian economy. While the Government of India can be expected to rush in to bail out the Rupee, the interventions can at best bring the exchange rate down to 70. This is cold comfort!
Oil at US$ 25 a barrel on 18.3.20 down from US$ 54 on 1.3.20
The slugfest between Saudi Arabia and Russia and the US is not likely to see an early truce. Iran is side-lined in the oil price war as it is deeply caught up by the global Coronavirus outbreak. Additionally, it is entangled by US financial restrictions and an embargo on sales of crude oil. Meanwhile, oil production levels and prices have reached a stalemate with Russia is insisting on its right to neither reduce production nor its oil price.
Freight rates have already increased by US$ 15 a ton recently. These can be expected to rise, depending on where the final price settles. The overall lower cost of oil can mean lower production costs and better EBITDA – the ultimate profit yardstick that all newsprint manufacturers go by. However, whether this will translate to a lower selling price of newsprint is completely unlikely.
Price of newsprint (42GSM) per metric ton
Q1 2020 Q2 2020 Q3 2020 Q4 2020
US$ 380/400 US$ 500/550 US$ 550/
40 GSM plus US$ 20 extra. 45 GSM less US$ 20 from 42 GSM plus.
Most long-term contracts end in March 2020, that is, till the end of Q1 2020. From there the newsprint price is expected to stabilize at US$ 500 to US$ 550 depending on both demand and inventory. Currently, most of the key Indian buyers have three months of inventory, which means until June 2020.