The newsprint crisis

The newsprint crisis

The price of newsprint in this country will increase again
next month by around 36 percent, following a series of increases
over the past year, ranging from around 4 percent to the 29
percent raise imposed just two months ago. Thus the newsprint
prices have increased by more than 97 percent -- or almost
doubled -- within the last year.

Undoubtedly this is a new record in the statistical history of
Indonesian economic performance during the last few decades. And
not surprisingly, newspaper publishers across the country are
very much worried. Some are considering the viability of passing
along the increases -- at least a big chunk of them -- to their
readers. Others are exploring the possibility of reducing the
number of pages they are publishing. Still others are thinking of
combining both options. The hard fact is, whichever option you
chose, you are bound to lose a certain number of your readers,
with no guarantee of avoiding bankruptcy.

Moreover, this recent politically-engineered price fixing of
newsprint will expire after three months. Just how much higher
the price of newsprint will be set for October and beyond is
anybody's guess.

And there is yet another major factor, which for some reason
has not been a part of most public debates and discourses about
these price increases. That is the newsprint situation worldwide.

Newspapermen around the world have been worrying about the
newsprint crisis since last year. In the United States, for
example, where newsprint prices have increased by more than 60
percent for the last 18 months, newspaper conferences and
seminars are being held to find ways to overcome the resulting
crisis. Similar efforts are being made in Europe and the Asia-
Pacific region.

During the first half of last year, world prices of newsprint
were still within a range of US$440 to US$450 per metric ton, or
around Rp 950 per kilo as compared to the local price of Rp 1,170
during that period. During the third quarter of 1994, the prices
increased to a range of US$560 to US$580 per metric ton, or
around Rp 1,235 per kilo as compared to the locally set price of
Rp 1,270 per kilo. They increased further to around US$700 per
metric ton (around Rp 1,535 per kilo) during the last quarter of
last year, while local Indonesian prices remained at the previous
level.

By the way, that was about the time Indonesian newsprint
manufacturers started exporting their products at the expense of
local publishers, disregarding the fact that the local publishers
had been subsidizing them unwillingly for many years.

Early this year world prices of newsprint continued to
increase, to around US$900 per metric ton by last March, or
around Rp 1,988 per kilo as compared to the local price of Rp
1,320 per kilo. Nowadays global prices have reached the level of
around US$1,100 per metric ton, or around Rp 2,444 per kilo as
compared to the current locally set price of Rp 1,700 per kilo.
And recent statistics from the newsprint front show that the
world demand for newsprint is expected to rise 4.2 percent in
1995 and 4.5 percent in 1996.

North America's production capacity is expected to increase by
only 0.6 percent in 1995 and 0.9 percent next year. No new
capacity in Europe is planned at this time. And the emerging
Eastern European economies will more than absorb any overcapacity
in the near future, while booming Latin American economies are
creating new demands. That is the situation, even without
considering the fact that the Pacific Rim's economic explosion
has included higher demand for newsprint.

In short, the world supply of newsprint is very tight as
compared to world demand. And some observers predict that this
supply situation can be expected to continue for three to five
years.

Fortunately for Indonesia, local capacity is still higher than
local consumption. The installed capacity of the three newsprint
producers is 285,000 metric tons a year, or about 23,750 metric
tons a month. Their combined actual output is estimated at around
14,000 metric tons per month, which is higher than the local
demand of around 12,000 metrics ton a month.

In light of these facts, there is still the possibility for
local newsprint producers to maintain a reasonably lower price on
newsprint for domestic publishers. Clearly they will not lose any
money because they can substantially increase their actual
capacities, lowering production costs in the long run, while they
can expect to benefit from higher export prices.