The Third Price Hike of Newsprint，Annual Costs of the Paper and Media Industries Increased 70 Billion

(NPES International E-commerce Website, August 28, 2008) The price uptrend of newsprint will be slowed down after this price increase, but due to rigid cost factor, the price reduction is unlikely.

The "Morning News" and "New People's Daily" in Shanghai have raised the retail price again in late July, increased from 0.7 yuan to 1.0 yuan each.

"Chutian City Newspaper", "Chutian Golden Newspaper" of Central city Wuhan also announced that the issue price will be increased from August 6: subscription price increase to 0.7 yuan each and the retail price increased to 1.0 yuan each. The price before the price hike is 0.5 yuan each. “Wuhan Morning News" and "Wuhan Evening News.” are also in price hike.

Behind the price hike of newspapers is the unbearable newspaper pressure of newsprint price hike.

"There are letters from major newsprint manufacturers to request that the price of newsprint will increase 400 yuan per ton again from August 1." The responsible person of Hubei Daily Media Group Bidding and Purchasing Centre told reporter of this newspaper, this is the third time of price hike in this year; the price of newsprint increased 400 yuan per ton on March.1 and increased 500 yuan per ton on June 1.

Agony of Price Hike
"This year's profit target of group has been cut from 80 million to 50 million yuan, if the price of newsprint accounts in accordance with 6,200 yuan per ton, only this aspect will increase the cost of 60 million yuan in this year, which is tantamount to consuming a whole year’s profit targets .”These people said that the Group would face losses if it didn’t raise the issue price.

Guotai Jun’an analyst Wang Feng told reporter that the newsprint price hike of the entire industry was under implementation. There are newsprint price differences in various regions and newspaper groups which have different supplies. The average price is from 6,000 to 6,100 yuan per ton before price increase, while the price is 6,300-6,400 yuan per ton after price increase.

Although the price increase rate of per ton only is 300 to 400 yuan, compared with the same period last year, the price of per ton has increased 2,000 yuan.

Taking Hubei Daily Media Group as an example, the purchase price of newsprint per ton is about 4,400 yuan in May 2007 and price rose to 4,900 yuan around per ton till January 2008 after several price hikes. After the price hikes on March 1 and June 1, the price has amounted to 5,800 yuan per ton.

"It can be said that it is a price alliance for price hikes of paper factories, they issued the notice almost in the same day and the range of price adjustment is also consistent, newspaper presses almost couldn’t find room for bargaining." above said by person in Hubei Daily Media Group, newsprint factory will reduce supply one month before the price adjustment, while newspaper presses have to passively accept the price hike after the reduction of spare paper in order to ensure publication. The annual paper consumption of Hubei Daily Media Group is about 60,000 tons, and there are7 to 8 manufacturers supply newsprint to them. After a few years’ macro-control, a large number of small and medium-sized paper manufacturers closed, there are only several major paper manufacturers provide newsprint for large newspaper groups.

"Because of the better situation in advertising revenue, newspaper presses still can stand up to the previous twice price hikes in this year. But newspaper presses only have to increase the newspaper issue price to confront the continuing price increase of newsprint." Said by above person, the newsprint price is accounted in light of 5,300 yuan per ton and 0.5 yuan for each newspaper before this price hike, the loss (cost) they have to bear is around 1.5 yuan.

Factors of Price Hike
Wang Feng believes that the factor for price hike of newsprint industry is still “US waste paper" as the main driver of price increase costs and it will not last long.
The raw materials of domestic newsprint mainly are "US waste paper" which imported from the United States - the waste paper of United States. "US waste paper" has increased from 150 U.S. dollars per ton to 310 U.S. dollars per ton from May 2007 to July 2008,” growth rate has exceeded 100%.

Reasons for price hike of “US waste paper”: first is the expansion of usage, not only it can be used as raw materials for newsprint, it is also used as raw materials for other kinds of paper; second is the reduced amount of "US waste paper" .There are about 12 million tons in 2005 and the amount has been reduced to 7 million tons in 2007; Third, the substantial increase in freight costs, due to the reduction of goods which export to the United States, the flight returned from the United States also reduced and an increase in freight .

Paper enterprises in previous twice price hikes are mainly to digest price hikes of "US waste paper”. ”The price hikes will help to improve the gross profit margin , the average gross profit margin of paper industry will probably increase to 20-21%." Wang Feng said.
In addition to price hike of raw material, other costs of domestic paper manufactures are also increase substantially. First, substantial increase in emissions standards; Second, labor costs increased significantly.

In addition, coal, oil and other energy also rose in price.
The industry insider has pointed out that the advent of the Olympic Games would increase the demand of paper; it is also a temporary factor for the price hike. The price uptrend of newsprint will be slowed down, but due to rigid cost factors, the reduction of price is unlikely.

According to the statistics of Chinese Newspaper Industry Institute, China's paper consumption volume of the newspaper industry is about 3.8 million tons in 2008; the upgrading cost will increase 70 billion yuan in accordance with the raised price 2,000 yuan a ton which compared to last year’s. According to report of "China Newspaper Press and publication", the full-year profit of China's newspaper industry in 2007 is 60 billion. In other words, it has devoured last year's full-year profit of the newspaper industry due to the price hike of newsprint.