Demand for newsprint in Australia has slumped by ten percent in the first five months of the year, according to latest figures from paper producer Norske Skog.
The company, based in Norway and Australia's sole producer of newsprint from its mills in Albury on the border of NSW and Victoria as well as the Boyer mill in Tasmania, reports a net loss of $A93.7 million for the second quarter 2015, citing weak publication paper demand. Norske Skog says its mills have reduced their capacity utilization to 80 percent in the quarter to avoid low margin sales.
“In Australasia, operating revenue declined slightly with Australian dollar depreciation and challenging export markets for newsprint to Asia,” said the company's Quarterly Report.
“Demand for newsprint in Australia decreased by around 10 percent in the first five months of the year compared to the same period last year, while demand for magazine paper was relatively stable.”
Local newsprint buyers watch the fortunes of the company with trepidation. Norske Skog has closed many under-performing production units around the world. The fear is that if the slump in demand continues the Australian operation could be next, imposing a additional cost burden by newspapers having to import.
Newsprint demand in Europe also fell by 10 percent in the five first months of 2015, while magazine paper was down 4 percent.
Norske Skog has a significant competitive advantage in Australia and New Zealand because it’s the sole domestic producer of newsprint and magazine paper. The company says export markets for newsprint to Asia pose a challenge with historically low prices. "In Australasia, the conversion of one newsprint machine to magazine paper at Boyer in Tasmania in addition to seasonally low energy cost helped to offset the challenging export market for newsprint to Asia."
“The current challenging market for publication paper is affected by cash-driven commercial policies and continued efforts to cut costs and improve productivity,” according to Sven Ombudstvedt, president and CEO of Norske Skog.
Norske Skog also announced it’s entering two new growth areas alongside the publication paper business. The company plans to build biogas facilities at its mills to utilize waste from paper production for renewable energy. The company will build its first biogas facility at Saugbrugs in Norway, scheduled to be operational in 2017, and is considering replicating the project at other mills. The new growth area will be named Nature's Flame, following Norske Skog's recent acquisition of Nature’s Flame - a New Zealand-based producer of wood pellets.
The company plans to enter the tissue market and will convert its newsprint site at Bruck in Austria to tissue production in a joint venture with Italian producer and tissue distributor Roto-cart. Total investment for the conversion project is around EUR 80 million, Norske Skog said.
“We are entering the tissue market through a joint venture structure with an experienced partner, which limits market risk and the capital spend for Norske Skog,” said Ombudstvedt. “The joint venture will replace newsprint production at Bruck with tissue. Thus, supporting the market balance for newsprint and exposing Norske Skog towards the growing market for tissue.”