Newsprint costs to rise - JS Corp

JEFFERSON Smurfit Corporation expects a $75 per ton increase in the price of newsprint from March 1st, according to president and chief executive officer Mr Dick Graham.

Mr Graham expects the industry will be able to implement an increase in the price of container board in the first half of the year after a year of falling prices in 1996. This is despite a failed attempt before Christmas to achieve a $30 dollar per ton increase in the price of linerboard against a background of good demand and low inventories.

Mr Graham took over the operations of the 46.5 per cent Jefferson Smurfit Group associate last July. Reducing debt and costs, achieving product price rises and increasing his company's presence in niche high margin markets are among his aims.

In the current year he will invest about $217 million (£136 million) modernising production facilities and equipping them to compete for higher margin, high quality business. Having reduced debt by $256 million in 1996, to a year end level of $1.94 billion, he wants to get debt down to around $1.5 billion to $1.7 billion. "This would give us the financial flexibility to grow both internally and when the right opportunity came along."

In 1996, the paper and paperboard industry in the US suffered falling prices due to overcapacity and varying demand for some products. Earnings per share at JS Corp fell from $2.23 to $1.05. The industry came off a very strong but short upward cycle at the end of 1995. The price of container board prices rose by $250 per ton to $530 at the end of 1995 but then dropped steadily throughout 1996.

Newsprint prices had risen to $760 per ton by late 1995 but an attempt in April 1996 to push through a price increase failed and prices have been falling since to reach the current price of $500 per ton. Newsprint accounts for 10 to 11 per cent of JS Corp's business.

Mr Graham expects the $75 per ton price increase, currently under discussion with customers, to become effective because both mills and publishers paper inventories have fallen and because "it is in the best interests of the newspaper and newsprint industries to see stability in the industry".

Asked about the size of the proposed increase (15 per cent) he contended it must be seen in the context of the price fall over the past year. "We will know by the middle of February," Mr Graham said.

Containers and containerboard account for about 50 per cent of JS Corp's business. After failing to achieve the $30 per ton price rise signalled in December the industry will try to get another price rise late in the current quarter or early in the second quarter, he said.

"Prices now appear to have stabilised and you must have stability before you can get an increase. Demand was strong in December and has been good in January. It is hard to pin down why the (December) price rise did not stick. Seasonally, its a tough time when the mills continue to run but the box plants take some downtime so there is a seasonal build up in inventories."

Mr Graham declined to comment on the sale of Morgan Stanley's 36 per cent shareholding other than to say that MS was "a good and active partner".

"Morgan Stanley and the Jefferson Smurfit Group are our two big shareholders and keeping them happy is my job. Enhancing shareholder value is the name of the game. We are a balanced company. We are not a linerboard players so our earnings last year were not down by as much as our competitors.