The newsprint market is notoriously cyclical. It swings from glut to shortage in violent but predictable fashion. When newspapers were buying supplies in the late 1980s, for example, newsprint was plentiful and prices at their cyclical lows. Some publishers took the opportunity to drive hard bargains, sewing up long-term supplies at heavy discounts to the market rate. Now that prices are hardening again, and supply tightening, producers are driving a hard bargain in reverse.
During the recession, capital investment in pulp and paper mills dried up, demand fell off, and supplies began to dwindle. Today, rising demand in the Far East and the US has led the UK's traditional suppliers in Canada and Scandinavia to divert newsprint away from Europe in the hope of fetching better prices. It takes months to bring new capacity on line at the mills, so the shortage here is unlikely to abate soon.
In tight markets, newspaper publishers need to rely on their relationships with suppliers. If they gouged newsprint sellers in the days of the buyer's market, they can expect to receive little sympathy at a time when suppliers hold the cards.
All newspapers are having a tough time securing supplies of newsprint. Most have short-term contracts, often periods of three to nine months, that theoretically cover their needs. However, these contracts only cover volume, not price, which remains negotiable. It is perhaps not too surprising that newsprint suppliers are holding out for as much as they can get: they have many lean years to make up for.
Gung-ho newspaper executives who pushed suppliers nearly to the wall in the days of plenty are now reaping the reward for forgetting the old City adage: "Leave a little for the next man." The past fortnight's purge of top management at Rupert Murdoch's News International is at least in part the result of their failure to learn this lesson.
As supply picks up, and prices moderate, big buyers of newsprint will see their costs drop. Perhaps in the next phase of newsprint glut, they ought to consider agreeing more reasonable terms, with the aim of allowing their suppliers to plan output better. Demanding huge concessions will only bring a repeat of today's acrimonious relations when shortages again occur. Worse, it could lead to cuts in the number of newspaper pages, a drop in the number of copies printed and lower advertising revenue.
That is what News International is learning to its cost.Reuse content