Papers hit in pulp shortage

THE announcement yesterday that News International is to ration the supply of copies of The Times, The Sunday Times, The Sun, The News of the World and Today to newsagents and reduce the size of those papers is the most dramatic symptom yet of an acute problem confronting the world newspaper industry - a shortage of newsprint.

Although NI's problem seems to have been a managerial one - a failure to order enough paper to meet the organisation's needs for the next two weeks - newspapers around the world are reeling from rocketing wood pulp/newsprint prices and are desperately casting around for ways of cutting costs.

By the end of this year, newsprint prices in Britain will have increased by more than 30 per cent. While many foreign newspapers have raised their cover prices, in the United Kingdom, where a fierce cover-price war is raging, proprietors have been seeking other ways of lessening the pain. These include: reducing pagination and paper sizes, changing the ratio of advertising to editorial, raising advertising ratesand cutting unwanted newspaper returns by targeting distribution more precisely.

Rising newsprint costs are important because they make up between 15 and 30 per cent of a paper's cost. Until the middle of last year, newsprint prices were up to 40 per cent lower than they were at their last peak in 1989. Tim Rothwell, paper and packaging analyst at BZW, says that newsprint prices at their lowest point last year were, at adjusted prices, lower than in 1932.

When the recession began in late 1989, advertising revenues started to fall and most newspapers began to reduce pagination. This reduced the demand for newsprint and led to its price falling. Low newsprint prices probably helped many newspapers to survive the recession and allowed Rupert Murdoch of NI to start a price war: it is widely thought that this war cost NI £45m last year, which analysts say roughly equates with what the company saved on newsprint costs.

As the world began to move out of recession in 1993-4, so demand for paper and wood pulp began to rise again and newsprint suppliers saw the chance to recoup past losses by raising prices. There has also been soaring demand for newsprint from South-East Asian nations which rely heavily on imported supplies. Recently Mr Murdoch hinted that some of his newspapers might have to increase prices to at least cover the rising cost of newsprint. On 13 February, The Sun raised its price by a penny to 23p. Mr Rothwell guesses it will rise again this year.

Meanwhile British media groups are keen to grab a larger slice of the Republic of Ireland's overpriced newspaper market - The Irish Times costs 85 pence in Eire, and the Irish Independent 80 pence

This may be why Dr Tony O'Reilly, the major shareholder in Ireland's Independent Newspapers, is looking at rationalising the Irish newspaper printing industry by building a major printing plant outside Dublin. This could print the group's titles more efficiently and contract print the titles published by its rival, the troubled Irish Press. A memo circulating in the Irish Independent offices this week advised staff that a new production operation would take at least two years to set up.