China’s appetite for cardboard boxes is threatening to undermine the recovery in the UK newspaper market, with newsprint manufacturers looking to increase prices by more than 20% next year as demand increases.
Manufacturers are playing hardball in the opening rounds of negotiations over the cost of newsprint, which can account for more than 20% of a newspaper group’s costs, with some regional publishers potentially forced to consider measures including looking at transforming some daily titles into weeklies to cope.
The blame for the tough negotiating stance by newsprint suppliers is being placed on the fast-growing Chinese manufacturing sector.
“The issue in the UK is that we mainly use recycled newsprint which is used globally for various things including being taken back to China where it is turned into cardboard boxes to bring consumer goods back to Europe,” said one senior newspaper executive.
Analysts at Citi have already downgraded the 2011 profit forecast for Trinity Mirror (LSE: TNI), the owner of the Daily Mirror and the UK’s largest regional newspaper operation, as a result of the anticipated newsprint price hikes.
Daily Mail (LSE: DMGT) & General Trust, owner of the Daily Mail and more than 100 regional papers, has highlighted “upward pressure” on newsprint prices.
Analysts at Numis have identified a potential price rise to the Daily Mail as a measure to offset newsprint price inflation.
About three years ago DMGT shifted the Bath Chronicle, then the smallest daily newspaper in the UK by circulation, to a weekly to save on costs.
“You would have to think that a significant increase in a major component of the cost base could accelerate that sort of process,” said one industry source.
However, publishers point out that manufacturers’ threat to increase newsprint price by more than 20% represent the opening gambit in negotiations.
“Games are being played on both sides; only rough quotes have been put forward,” said one source. “Most newspaper publishers have spent the past two years taking costs out and reducing pagination, so it’s not like there’s loads of fat in the typical newspaper to be removed.”
Dominic Buch, an analyst at Numis, said: “We are expecting a significant increase in prices; the mid-teens looks like where we would expect cost increases to come out.”
This article originally appeared in MediaGuardian.