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Just over a year ago, paper manufacturer Norske Skog announced that it was counteracting overcapacity in the European newsprint market by culling 270,000 tonnes of capacity. The firm argued that there was too much newsprint being produced in Europe and this was creating an unsustainable market.

A year on and the drastic measures continue. News-print capacity is still being withdrawn and last month UPM set about closing its Kajaani mill, removing 13% of its newsprint capacity.

Despite the abundance of newsprint, an additional million tonnes of capacity could be built in the UK in the near future. Palm Paper in Norfolk and Ecco Newsprint in Middlesbrough have both announced plans for new plants, each with around 400,000 tonnes of capacity. There has also been speculation that Aylesford is considering installing a new paper machine.

So, is there really a need for new UK capacity when the rest of Europe is cutting back? Or have UK paper manufacturers identified a way to capitalise on the fall in European capacity by offering a local service?

Expensive materials
For European mills, the move to cut output has not just been a reaction to overcapacity. Europe’s mills use a larger proportion of virgin material, which is becoming more expensive – hitting profitability and forcing efficiency drives – while the UK uses much more recycled stock.

Marcus Moir, chief executive at Ecco Newsprint, says: Exports of timber from Russia are becoming far more expensive. If the mills have older equipment and there is no scope for an upgrade they are being hit by costs and the sites are being rendered uneconomic.

The result of this is that newsprint mills, which are currently negotiating with customers over 2009 prices, are asking for a lot more money. The average quoted price for a tonne of newsprint earlier this year was around £350 and this has remained flat for the best part of the past 20 years.

However, one newsprint expert told PrintWeek that he would bite your hand off to buy at £380 a tonne in 2009. He says: If you had asked me six months ago I would have said that I was expecting about a 10% increase.

Newsprint manufacturers have definitely had their bottom lines hit and they have already said that there will be an increase. But at the moment I fear that we could be seeing increases up as high as 20%.

But it is not just the decrease in European capacity that is affecting price. Imports from North America have halted, while global demand is up as China and India’s growing economies consume more and more paper.

Circulation increase
Ian McDonald, managing director of operations at News International, says: The US is crumbling, they haven’t invested in paper mills in years. They have outdated kit and there are no imports coming in from the US and Canada. We used to have restrictions limiting the amount that came in.

On top of that, India and China are still growing in a big way. I think every major newspaper in India has seen an increase in circulation. So we are expecting a substantial price hike this year.

However, despite the situation in Europe, one thing that is clear is the scope for new plants in the UK. In a time when environmental considerations are paramount and the distance of delivery affects its carbon footprint, the more supplies a company can source locally, the better.

Local market
Justin Hobson, marketing director at Fenner Paper, compares the newsprint sector to toilet rolls, which tend to sell to a local market.

It isn’t cost effective to move toilet paper around, he says. Most markets have a toilet roll production industry because it just doesn’t make sense to pay for the transport costs.

Realistically there is a major benefit in having newsprint produced here. It is more viable to produce locally now because of the greater availability of recyclable material.

The UK consumes around 2.5m tonnes of newsprint every year and around 60% of that is imported. If Palm Paper and Ecco Newsprint do put new manufacturing capacity in play, it would mean that while the country would still be importing, the balance would swing the other way and the UK market would only require 40% of its newsprint to be shipped in.

A situation like that could also leave the UK relatively resistant to further price hikes should supply and demand for the product continue to slant in the paper manufacturers’ favour. While not completely immune to the price rises faced in Europe or the US, or the challenges of rising demand in the emerging economies, a local supply could alleviate these issues and leave the industry in a better place.