Tuesday, September 23, 2008

Right or wrong, Kimberly mill closed

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

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.