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EUROPEAN NEWSPRINT SECTOR – FOCUS UK / 22 Jan 2018

Blog: 2017 Review for the European Newsprint sector – focus UK

Europe faces a falling newsprint demand and is challenged by rising raw material costs. For the UK newsprint producers however, the weak pound can be a positive development.

2017 was an interesting year for the UK newsprint producers, not least because of the continuing uncertainty over the impact that Brexit will bring but also because of the recent legislation announcement that the Chinese will impose on recovered paper imports.

The post Brexit vote has resulted in the substantial weakening of the pound over the latter part of 2016 and the course of 2017. Although Newsprint prices in Euro terms have remained relatively stable during 2016/2017, the price that UK publishers pay for imported newsprint has increased, as shown in Picture 1 below.
This is, of course, bad news for the publishers with revenue from ad-spend continues to decline and circulation figures constantly under threat from competing media platforms. However, for the UK newsprint producers (and the UK manufacturing sector overall) the weak Pound can be a positive development – more expensive imports can be favourable for local producers which can also benefit from better export opportunities. The UK newsprint manufacturers cost base is not as sensitive to currency fluctuations considering that the UK are self-sufficient and a large net exporter of recovered paper.

Picture 1:  German newsprint price in EUR and GBP 

The UK has historically been a large net importer of newsprint. Naturally, the import volumes have come down considerably from the heights of around 1.5 million tonnes in the beginning of 2000s. Picture 2 shows monthly net imports to the UK from 2015 to the latest available data in 2017. The figures suggest that net imports have declined to less than 30kt per month in 2017. This is not surprising, considering the weak pound against the Euro, declining overall demand for newsprint and relatively strong local producers, UPM Shotton and Palm Paper.

Picture 2: The UK newsprint monthly Net Trade (Net Imports)  

Europe faces a falling demand challenged by rising raw material costs

Demand for newsprint in Europe continues to fall. After a drastic decline in 2015, the decline in 2016 was in the region of 4% and similar decreasing demand for newsprint is expected for the coming years. In Europe, Q1-Q3 2017 saw very little change in the newsprint industry capacity. However, conversion of the IP Madrid mill and Leipa Schwedt PM11 to containerboard has very recently removed ~620kt newsprint capacity from the market. Utzenstorf and Norske Skog Bruck have announced closures of around 335kt capacity in 2018. If these closures are completed, the capacity adjustments should be sufficient to keep the supply-demand balance in a reasonable condition in 2018.

Fibre costs remain the largest share of the paper producers' costs   and this continues to be a particular challenge for Newsprint producers, as over 75% of European newsprint is produced using recovered paper. The main production cost component is News & PAMs (Periodicals and Magazines), the price of which has been increasing due to stagnating collection rates and buoyant demand from other markets such as tissue. Hence, recovered paper prices in the UK have been increasing over the last 2 years and with the further development and announcement of legislation from China limiting the imports of waste paper in to China as of 2018, prices continued to increase in 2017 in anticipation of this change. It remains to be seen how recovered paper prices will develop in 2018 but it certainly appears that there is more pressure for prices to remain high rather than decrease.

 (Published as an article in the PITA Annual Review December 2017)

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Riku Kallio
Principal