Sunday, January 11, 2009
U.S. manufacturing base needs shot of rejuvenation
Posted by Doug Dugal:
Research and innovation made the U.S. the leader in the agricultural industry. Even today we could be called the food basket of the world.
During the industrial revolution, the U.S. again became the leader. But lately, our manufacturing base is eroding due to outsourcing. Keep in mind that outsourced services can be easily brought back to the U.S., but bringing back outsourced manufacturing facilities will be difficult, time-consuming and expensive.
U.S. manufacturing base: Loren Thompson is quoted by Greg Grant in the Dec. 15 issue of Policy that in 1981, manufacturing made up nearly 25 percent of the U.S. economy, compared with 12 percent today. Our merchandise trade deficit doubled to $800 billion and those trends are driven by the erosion of domestic manufacturing. If America loses what's left of its auto industry, or its aerospace industry, or its chemical industry, our superpower status will ebb away.
The long-term implication is that soon the U.S. will no longer build anything. The fact, however, remains that economic growth generated by making world-class products is more sustainable. It is not that other countries are better at manufacturing than we are; they are just better at protecting their manufacturing base.
Paper industry manufacturing base: The mantra that we are the biggest and the best is losing its luster. We must wake up to reality. At one time China was the fifth- or sixth-largest producer of paper and board; now it is the second largest and quickly catching up with the largest producer, the U.S.
In the last 15 to 20 years China has installed more than 30 paper machines, whereas the U.S. has shut down many. Writing and printing papers are already under attack from China. Pretty soon our tissue and towel manufacturing will be under pressure as well; China is now buying high-speed tissue machines. We were a net exporter of paper goods; soon we will be a net importer.
Conclusion: Currently the world business environment is going through a "hiccup."
But, I think, over the long run future growth markets for consumer goods will be India, China, Africa and certain parts of South America because they have huge numbers of "information/goods hungry" consumers. Industrialized nations such as the U.S. and Japan are mature markets and will not have extensive growth unless nifty value-added products are developed through research, development and innovation. We need to revitalize the U.S. manufacturing base to satisfy domestic market, fast. The choice is ours: Either the U.S. can close mills and withdraw or protect manufacturing base and seriously compete.
I think our dependency of essential goods on foreign countries may be a big mistake in the long run. One of the major reasons is that we put economic "sanctions" on certain countries when their actions are against our national security interests. These economic sanctions also include "goods" those countries need but do not produce. So if our manufacturing base is compromised, guess who is going to put sanctions on whom? Just a thought. Wise up.
Free-trade agreements must have the same playing fields for all traders. Granted, in the global economy goods will be produced where they are made best; but why can't that manufacturer be the United States?
Monday, December 29, 2008
Prices dropping for all grades of paper
Posted by D. Eadward Tree
Deflation has now officially hit the market for publication papers: Prices for everything from newsprint to coated freesheet have declined this month, several sources indicated in the past week.
December prices were down even in the formerly rock-steady market for high-grade supercalendered paper (SCA) paper, according to both Pulp & Paper Week and Deutsche Bank. Mark Wilde of Deutsche Bank put the December drop at $10 to $20 per ton and said SCA prices could continue declining if demand for lightweight coated (LWC) remains weak. Until recently, analysts were predicting that SCA prices would remain steady or even rise during 2009.
"Newsprint prices are slipping," Wilde wrote, with declining costs and the Canadian dollar making mills more willing to accept lower prices rather than shutting down. The Deutsche Bank analyst agreed with Pulp & Paper Week that newsprint dropped about $10 to $15 per metric ton in December, breaking a string of consecutive monthly price increases that had pushed newsprint prices up more than $200, or about 35%, since the summer of 2007.
FOEX reported a slight drop in U.S. newsprint prices last week, while Forestweb reported that newsprint prices are flat. But Forestweb's North American Publishing Papers Index decreased in December because of declining prices for coated papers.
Prices for LWC and other coated-groundwood products dropped $35 to $70 per ton in December and are "coming under increased pressure, wrote Wilde. "With consumption likely to remain weak and the US$ rising (increasing threat from imports), producers will remain at battle stations through 2009," he added. High customer inventories, decreasing catalog circulation, and a weak advertising market for magazines are all dragging down coated groundwood.
The CEO of Abitibi Bowater (aka AbitibiUnderwater) admitted to the Globe and Mail this week that his biggest fear was a collapse of demand in the first half of next year. Despite the bearish news on pricing, shares of the newsprint giant doubled in price during the week (to 52 cents, down from $20.47 at the beginning of the year). AbitibiBowater stock was boosted by news of an apparent sale of some hydroelectric assets, production cuts by competitors, and the company's statement that the current quarter will be more profitable than the previous quarter. All of that boosted hopes that the company will remain solvent despite having $1 billion in debt payments due during the coming year.
Stocks of such other publicly traded paper companies as Verso, Domtar, and Catalyst were generally flat for the week. Wall Street had already accepted that demand and prices will decline. The big question is whether producers will idle enough capacity to prevent paper markets from collapsing.
Wednesday, December 17, 2008
Paper war breaks out as White Birch undercuts Abitibi's price discipline
By Andrew Ragsly
White Birch Paper broke ranks with other newsprint manufacturers this month by slashing prices to capture market share amid dwindling demand, industry sources and two buysiders told Debtwire.
Privately held White Birch is the second largest producer of newsprint in North America with 18% of total market share. The company is flouting attempts by industry leader AbitibiBowater to enforce price discipline by lowering its going contract rate. Abitibi wants to protect pricing in the face of persistent order declines from ailing newspaper publishers, said the sources.
Specifically White Birch cut a deal with Gannett Company this month to supply newsprint through 2009 well-below November's industry-average price point of USD 770 per ton, said two of the industry sources and one of the buysiders. While at a lower price point, the deal is rumoured to boost the volumes White Birch will supply to Gannett year-over-year, one of the sources said.
The pricing war is hitting AbitibiBowater at a particularly inopportune moment. The company faces USD 919m of maturities over the next year, including a USD 347m Libor+ 800bps term loan due 30 March. Management needs to impress lenders with a bullish cash flow story if it hopes to refinance those obligations, said the buysiders.
Spokespersons for White Birch, AbitibiBowater and Gannett declined to comment.
Abitibi's USD 347m Libor+ 800bps term loan was bid at 75 today, down from 82 on 2 December, according to Markit. Bowater's USD 250m 9% traded at 27 on 3 December, down from 45 on 19 November, according to TRACE. White Birch's USD 100m Libor+ 480bps second-lien term loan was bid at 15 today, down from 33 on 10 November. The company's USD 475m Libor+ 275bps first-lien term loan was bid at 48.25 today, down from 59.12 on 24 November, according to Markit.
"AbitibiBowater, as the number one market share player [with 41%], was always going to hold onto prices as long as they could," said one of the industry sources. "It's finally starting to show up now that smaller players are breaking ranks, but White Birch and other companies had been making their undercutting moves since back around September."
AbitibiBowater bowed to pressure from White Birch last week when it rescinded a USD 20 per-ton price increase, according to three of the industry sources. The Canadian-US behemoth also announced last week the removal of 830,000 tons of newsprint capacity.
West Coast paper producers Catalyst Paper (7.8% market share) and Norpac (5%), have already been pricing at a discount to the AbitibiBowater-dominated East Coast market for the better part of a year. West Coast newsprint prices tracked near USD 700 per ton in November, said the sources. An official from Norpac declined to comment, and Catalyst Paper did not return calls.
The pricing conflict is also spreading into the coated free sheet paper market as Gannett is rumoured to have negotiated a USD 1,060 per ton contract with NewPage, down from November's USD 1,100 per ton price point, said one of the buysiders. A spokesperson for NewPage would not comment on specific contracts with its customers, but maintained the company is "holding price just fine".
Similar to newsprint, the coated paper sector has been under pressure to take out capacity in order to offset demand declines and boost pricing. Coated free sheet and newsprint consumption were both down roughly 15% year-to-date, according to a sellside analyst.
NewPage's USD 800m 10% second-lien notes due 2012 were bid at 40.5 on 5 December, down from 56.5 on 24 November, according to TRACE
Thursday, December 04, 2008
No Pulp Fiction: Engineers See Major Paper Mill Savings With New Rotor Technology
By Brian Lin with files from Erinrose Handy
A partnership between UBC, government and the pulp and paper industry has resulted in the development of three high efficiency pulp screen rotors that produce high quality paper while reducing almost half the energy required.
“There are currently 300 pulp screens in British Columbia’s 20 pulp and paper mills,” says UBC Mechanical Engineering Assoc. Prof. James Olson. “The industry consumes almost 20 per cent of all the electricity produced in the province and pulp screening is an energy intensive operation in that process.”
Pulp screens work somewhat like the spin cycle in a household washing machine by rotating at high speeds and forcing pulp through narrow openings in the screen. Pulp screens in B.C. alone consume 300 Gigawatt Hours per year at an estimated cost of $16 million -- or enough energy to light up 15,000 homes.
Olson and fellow UBC engineers Carl Ollivier-Gooch and Mark Martinez, along with industrial partners at Montreal-based Advanced Fiber Technologies Inc., took inspiration from aerospace technology and designed a family of uniquely shaped, hydrodynamic rotors that significantly reduce drag and operate at much lower speeds and power, while increasing the capacity and efficiency of the screen.
The technology was patented and licensed to Advanced Fiber Technologies and 100 new rotors were installed in 30 mills across Canada.
“The trial results were beyond everyone’s expectations -- reducing electricity consumption by 52 per cent compared to current state-of-the-art rotors,” says Olson. “If all pulp screens used in B.C. mills were converted to the new rotor technology, an estimated $8 million could be saved each year. Adopted nation-wide, the industry could save $20 million a year.”
While the cost savings would increase the industry’s competitiveness against new paper producers such as China, the reduced energy usage also translates into lower greenhouse emissions. The new technology could also cement Canada’s leadership in pulp equipment manufacturing and further diversify a sector that currently logs $53 billion in sales and $44 billion in exports per year.
As a result of the success in the mill trials, the research team has won BC Hydro’s New Technology of the Year Award (2007), the Natural Sciences and Engineering Research Council of Canada (NSERC)’s Synergy Award for Partnership and Innovation (2007), and the British Columbia Innovations Council’s Lieutenant Governor’s Award (2008).
The work has also led to a $2.2 million investment from the Natural Sciences and Engineering Research Council of Canada and a partnership with 11 industry partners including BC Hydro and most of the paper mills in B.C.
“There’s a gap between electricity supply and demand in B.C. and we need to do more to conserve power,” says Lisa Coltart, BC Hydro’s director of Power Smart. “We’re excited to contribute to research that will provide substantial energy savings while making the province a world leader in the field.”
Tuesday, September 23, 2008
Right or wrong, Kimberly mill closed
The Kimberly mill owned by NewPage is shut down. Another pillar of the building that was holding the Fox Valley paper industry has been removed. I hope all options were explored before the shutdown order was given. I hope the shutdown is temporary.
Current information: It's my understanding that the shut-down mill will be kept "alive" at a minimum subsistence level of heat and maintenance crew so things do not fall apart. It seems like an OK approach but could be risky to the valuable equipment that the mill possesses. If the mill is not reopened for business soon, there is one more important "thing" the company will lose, and that is its talented work force. So whatever the long-range plan may be, the owners should start the mill soon and keep the talent-pool from breaking up. It will be difficult to put the teams together soon.
Another major impact of delay will be the loss of Kimberly mill's devoted customers. Once gone, it will be hard and time-consuming to recreate trust and get them back.
Needed evaluations: It is true that if the business is not making money, it will fail. I am sure the mill owners have done an exhaustive job of saving the mill but could not do so because of economic reasons. NewPage must have considered: restarting the mill (most economical option); employee buyout; government intervention to level the import-export playing field and selling to a new buyer, etc.
The restart consideration must have involved cutting costs of raw material, energy and labor; purchase of pulp from Wisconsin paper companies with overcapacity. They must have also fully debated how to save 500 families from devastation.
Most U.S. paper companies are blaming foreign competition, especially from China, as the core cause for our failure. I do not think it makes sense. My calculations, based on per capita consumption and total U.S. production figures, show that there should be a shortage (not a glut) of paper and paperboard in the United States.
Could there be other reasons such as stock analyst's expectations of unusually higher returns on investment? If true, we are at fault.
Closing of Kimberly mill: Shocking for some, OK with others, but devastating for those who lost their jobs. I think if the current trend continues, the U.S. may be in danger of becoming a "consumer-goods hostage." We must decrease dependency for essential goods from foreign countries. To compete, we must modernize our paper mills, increase productivity, and invest in research and development and invent new-efficient processes and value-added products for our markets, worldwide.
If I were a sarcastic person, I would write that what if the mill is closed and 600 people lost their jobs, at least we have PCB-free Fox River (we think we have) at a cost of more than $350 million.
Sunday, September 14, 2008
Paper Companies to Cut Thousands of Jobs
A combined 3,300 positions eliminated at UPM, Stora Enso.
By Jason Fell
It appears that UPM Kymmene, the world's largest producer of magazine paper, is following through on its plans for consolidation. The company said it plans to cut 1,600 jobs between 2009 and 2010 as part of a reorganization.
Also as part of the reorganization, UPM is considering the closure of a number of its mills in Finland, the company said in a statement. The changes come as a result of rising costs and a crowded industry.
"UPM's employees have succeeded in increasing the internal efficiency to a new level but unfortunately cost pressures have multiplied," president and CEO Jussi Pesonen said. "The situation is striking particularly in Finland, where wood prices have increased to such a high level that profitable operation of all our units is no longer possible. With today's market outlook and the recent cost development, UPM's paper and pulp production in Finland can not continue in its current form and extent."
If UPM does in fact close the mills, the company says it will book a write-off of about $240 million in fixed assets for the fourth quarter, make a provision for the reduction in the number of employees and for other closure costs of about $42 million.
The reorganization would save UPM nearly $98 million annually and would have a positive impact on EBITDA, the company said.
UPM reported first half revenue was about $7.03 billion, down about 5 percent from $7.43 billion during the first half of 2007. Net profit for the half was $132.27 million, up from a net loss of $291 million during the same period last year.
Job Cuts at Stora Enso
Stora Enso Oyj, another Finland-based paper producer, also announced plans for a reorganization which it said would eliminate 1,700 positions.
As part of the reorganization, Stora Enso said it will close a paper machine in Germany that produces 140,000 tons of coated magazine paper per year.
The company said it plans to invest $190 million to improve efficiency and that estimated annual operating profit would improve by about $200 by the end of 2010 as a result of the reorganization.
Sunday, August 24, 2008
Review: Paper Trails
by Mandy Haggith
Mary Wakefield discovers the true cost of paper
It's unusual to come across a book that manages to be both very boring and very interesting at the same time. It happens sometimes with people - old relatives, for instance, and their meticulous recollections of doodlebugs and powdered egg - but only rarely with books.
So Paper Trails, one woman's mission to uncover the evils of the global paper industry, contains an extra unintentional conundrum: is it fascinating or dead.
Is it amazing that an average Brit uses over 440lbs of paper a year? That the world consumes just under a million tons a day, which if it were laid out in A4 sheets would wrap around the equator 1,500 times? That a third of all forms become out of date before they're distributed? Or is it tedious? I'm in two minds.
Perhaps this curious boring/exciting thing is a quality inherent in paper itself. After all, paper can be some of the dullest stuff on earth: the crumpled trouble-makers found inside jammed copiers, graph paper, cash-machine receipts, junk mail.
Or it can be terrifically exciting. Nothing since has ever compared to the teen allure of hunky-dory paper: thick, ridged, purple, yellow, red, ready for writing on in silver pen. Then there's greaseproof paper, that harbinger of deliciousness, and clever little Rizlas, and brown paper packages tied up with string.
And oddly, Mandy Haggith, the author, is herself subject to the same boring/interesting schizophrenia.
She says in chapter one that she once made a big pile of all the paper a person uses in a year, and exhibited it in her local town hall so that her pals could repent of their wasteful ways. How dull is that?
"It made my neighbours gasp," says Mandy. I suspect they were yawning. Then she confesses to a "weakness" for hand-made paper. Hand-made paper is loathsome. No one writes jokes on hand-made paper and sometimes there are flowers pressed into its fibres. Why not spiders? Much better. More appealing to kids.
On the upside, Haggith's journey has the comic nobility of a heartfelt crusade.
Paper Trails documents her paper-chase round the world, following her subject from birth to death: from logging (often illegal) through to pulping, paper-making, paper-wasting, paper-recycling; tree-huggers chasing tree muggers.
And it's not all stats and lectures; there are touching passages whenever Mandy meets up with a handsome barefoot environmentalists and her prose blossoms: "The broadleaf trees were in full autumn colours, vine leaves shouting red up aspen trunks crowned with fluttering gold coinage."
The paper industry also turns out to be full of fabulous baddies, straight from the pages of a Carl Hiaasen novel.
In Indonesia, Mandy meets nasty loggers, all smokers and scowlers who employ bouncers trained by US marines to warn our girl detective off. They flout regulations, make off with irreplaceable trees, and plant in their stead the alien acacia which sucks the water from the land and poisons the soil.
In Russia Mandy tackles the aluminium tycoon Oleg Deripaska, who owns a paper mill on the edge of beautiful lake Baikal. Baikal contains 20 per cent of the world's liquid drinking water (see, that's interesting, isn't it?) but the plant has been accused of polluting it, which is very aggravating for the Nerpa, the world's only earless, fresh-water seals.
Still, on the plus side, Haggith has a very satisfying pop at Vanity Fair. "Their Green Issue was full of puff-pieces on the environmental credentials of American celebrities, yet not even printed on recycled paper".
The paper industry is accused of buying up ancient trees, home to monkeys and moths, and turning them into pulp on pub toilet floors. Isn't the 21st century great?
But then just when you're ready to join Mandy's gang and to ignore all the brain-numbing passages of eco-bore, she'll introduce you to one of her friends: "In an era of increasing competition and growing concern about corporate responsibility," says Ginger Cassidy from ForestEthics, "companies must demonstrate their values and protect their brand by implementing better environmental policies."
Now that's a real waste of paper.
Norske Skog sees newsprint price hikes
By Camilla Knudsen and John Acher
OSLO/HELSINKI (Reuters) - Norwegian papermaker Norske Skog (NSG.OL: Quote, Profile, Research, Stock Buzz) sees European newsprint prices increasing in 2009 by more than rising costs, giving some margin improvement, the company's chief executive said on Wednesday.
The paper industry has struggled to climb out of a six-year slump, dogged by overcapacity, soft demand and prices and rising costs of raw material and energy which have kept earnings poor. European producers have also suffered from a weak dollar that has put them at a disadvantage to North American rivals.
Newsprint, the paper newspapers are printed on, has been one of the hardest hit segments, partly because of the shift over the last decade to electronic publishing from print media.
Norske Skog sees a tighter balance in the European newsprint market due partly to capacity closures, but also aided by price increases in North America and steep price rises in Asia, Chief Executive Christian Rynning-Toennesen said.
"We believe in price increases in European newsprint next year," Rynning-Toennesen told the Reuters Paper Summit, calling it "highly likely." Newsprint prices are set in annual negotiations with customers, talks that will begin this autumn.
He declined to say by how much he expected prices to rise but said: "There's an unusually strong combination of price increases in the other major markets in the world plus a tightening of the market balance in Europe."
Norske Skog is the world's No. 2 newsprint producer. Other producers agreed that newsprint prices are headed up in Europe.
BIG PRICE HIKES
"We are speaking of a substantial price increase," Swedish papermaker Holmen Chief Executive Magnus Hall told the summit.
Costs are rising, though there has been some easing off in the rise in energy prices and recovered paper prices have flattened out, Rynning-Toennesen said. "I still expect cost pressure throughout the rest of this year," he said.
"In European newsprint, it is likely that we will see price increases bigger than cost increases so that there is some margin improvement," Rynning-Toennesen said.
Magazine paper prices are up and can go further, he said.
Norske Skog has implemented 5 to 7 percent price rises from the second quarter into the third quarter on new contracts, he said. "And we still think there is room to increase prices of magazine paper further from where they are now," he said.
The demand picture in newsprint remains soft in the mature markets of Europe and North America.
"It's already quite obvious that the price increases we see in the United States are because of the (capacity) closures that have been done there because the market for newsprint in the U.S. is declining," he said.
Newsprint demand in Europe is down by 2 percent in the year to date from the same period last year, he said.
"In the U.S. it is obviously continuing down -- it was 8 percent down in the last 8 months in the last 12 months -- whereas we still see very solid growth in Asia outside of Japan, which means particularly high growth in China and India."
"We believe in a slowly downward trend in European newsprint consumption, a steeper decline in U.S. consumption also for the rest of the year, and continued good growth in Asia and South America," he said.
(Reporting by Terje Solsvik, Camilla Knudsen, Sakari Suoninen and John Acher; Editing by David Cowell)