Why is the cost of newsprint rising by 20% when ad revenues are falling by 20%?

Much rejoicing at Norske Skog, the world’s second-largest manufacturer of newsprint.

The boys from Lysaker are happy with their plans to jack up newsprint prices by as much as 20% this year. So happy, in fact, that they’ve been nattering to the FT about those plans.

The opportunity to stick it to publishers has opened up courtesy of a stronger dollar. Back in January of this year, it cost 51p to import a dollar’s worth of paper from North America. Now, it costs 64p.

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Accordingly, paper imported from the US has become a lot less competitive in Europe. Like this:

In the first nine months of 2008, newsprint exports to western Europe fell 20.6 per cent from the same period last year, according to the Montreal-based Pulp and Paper Products Council.

Just to help things along a bit, Norke Skog suspects that European paper manufacturers have this year reduced capacity by 6%, double the 3% drop in demand. (That’s those long lead times in operation, no doubt.)

So what’s the inevitable result of less competition and less capacity? Rising prices, of course.

But 20%? When your customers are already reeling from similar-sized declines in ad revenue, this will only accelerate the decline of print, pushing publishers to close more papers more rapidly.

If the Scandinavian paper mills went looking for a way to kill off their prospects of future growth, they could scarcely do better.

For good measure, the paper barons seem to be suggesting — a tad defensively — that the price of wood, energy and transport has “risen significantly”.

Mmm. Depends where you start from I guess. This morning, the price of oil sits around $54 a barrel, compared with $150 during July.

And the Baltic Dry Index — which provides a reliable guide to the cost of shipping goods worldwide — has dipped below 1,000 for the first time in six years. The index has fallen by 89% this year.

Norske Skog really should be a bit more careful about the tone of its discussions with the media. Unfortunately, the FT‘s report reeks of anti-competitive intent.

Oddly enough, the industry has been here before. In 1995, the European Commission launched an anti-trust investigation into newsprint manufacturers.

Back then, they were attempting to foist price increases of 20%-25% on a publishing industry that was recovering from recession. This time around, they’re attempting to do it as we enter a recession.

Norway isn’t part of the EU. But this doesn’t mean that Norske Skog can act with impunity.

If m’learned friends in Brussels aren’t already sniffing around the various cabals of the European newsprint industry, they surely will be soon.



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