NEW YORK, AUG. 17 -- After swallowing a price increase in July, the nation's newspapers are likely to be hit by another boost in the cost of newsprint early next year, analysts say.
Paper mills already are operating at full throttle, and virtually no increase in capacity is scheduled in the near future. Meanwhile, demand is certain to be strong in 1988, as newspapers add pages to cover a presidential election and the Olympic Games.
Strikes at a handful of paper mills in Canada, which outproduces the United States nearly 2-to-1 in newsprint, have only added fuel to the fire.
While major North American newsprint producers declined to comment on the likelihood of a price hike, analysts agree that it is just a matter of time.
"I'd say there's an 80 percent probability that they will announce a price increase in November," said Mark Kurland, research director and paper industry analyst at Mabon, Nugent & Co. He predicted the increase would be about 5 percent.
"The producers are playing catch-up right now," Kurland said. Indeed, newsprint users enjoyed a prolonged period of price stability. From July 1984 through October 1986, the price of newsprint held steady at $535 a metric ton. Prices then jumped to $570 a metric ton, where they held until July, when prices went up about 7 percent, to $610 a metric ton.
"We tried eight times to put in a price increase" before finally managing the latest increase, said Fraser Robbins, assistant to the vice president of investor relations at Bowater Inc., the nation's largest newsprint producer.
"We would have announced price increases, but then we'd get feedback from the market that it was not going to fit," he said of the entire industry. "People said they would take their business elsewhere."
Now, however, newsprint producers seem to have the upper hand.
U.S. consumption of newsprint is at an all-time high, continuing a trend that began in 1984. The American Paper Institute predicts newspapers will use 12.3 million metric tons of newsprint this year, up from 11.9 million metric tons in 1986, also a record year.
"The outlook is very favorable for the producers," said Andrew Gray, a vice president and paper analyst at Pershing, a division of Donaldson, Lufkin & Jenrette Securities Corp. "You have firm prices now and into the future, firm demand and no new capacity coming on board."
Mills in the United States are expected to produce 5.2 million metric tons of newsprint this year, after producing 5.1 million metric tons in 1986, API said. Canadian mills are expected to increase their output by 2.8 percent this year, to 10.16 million metric tons, API said.
Demand and capacity seem to have fallen out of synchronization. Over the past four years, total North American newsprint capacity increased by 200,000 metric tons, while consumption shot up by 1.8 million metric tons, said James L. Hutchison, vice president of API's paper group.
Newsprint plants, meanwhile, are operating at between 97 percent and 98 percent capacity in the United States and Canada with little relief in sight.
No new production is scheduled next year, but Hutchison expects "quite a few new facilities" to open in the next few years.
"We know what's coming because it takes two or three years to build a new paper machine," he said.
So far a handful of North American paper companies have announced expansion projects that will add about 839,000 metric tons, while a number of other companies are studying the possibility of adding a similar amount.
"But this won't come on line until 1990, 1991," said Kurland, who noted that not every company may follow through on its announcements. "Companies do a lot of bluffing," he said.
Meanwhile, prices are likely to continue pushing higher until the new machines are up and running. "Things will be hot in the next couple of years," Kurland said. "The market is incredibly tight," but prices could fall once mills increase their capacity, he said.
Adding further upward pressure on prices have been strikes at a number of Canadian mills. Canadian International Paper Inc., Consolidated-Bathurst Inc. and Donohue-Normick Inc. are among the paper producers to have settled strikes over the past two months, according to the Canadian Pulp and Paper Association.
A strike at the Ontario Paper Co. lasted only 16 hours -- or two shifts -- before being resolved in July, but analysts say even a one-day work stoppage can affect prices.
"The strikes have frightened some publishers," Kurland said. "Even though they'll be resolved, a strike tends to take production out; it drops inventories, it tightens up supply and demand and makes a price increase easier to go through."
At the end of June, publishers had an average supply of newsprint to last 44 days. In 1986, supply ranged from between 40 days to 45 days. Analysts consider a 40-day supply to be low.
Industry observers expect newsprint demand to rise again next year as advertisers shift more business to print media and as newspapers expand coverage of the presidential election and the Olympic Games.
While the phenomenon has never been tracked, newspaper production managers do notice that papers become heavier during election years. "There might be special sections, and the paper goes up in pages when we're close to an election," said Tom Hathaway, inventory control manager of The Los Angeles Times.
But he noted that the paper's newsprint needs also increase each year because the paper gains readers. "It's all part of our growth," he said.