Review: Paper Trails

Review: Paper Trails
by Mandy Haggith
http://www.telegraph.co.uk/arts/main.jhtml?xml=/arts/2008/08/23/bohag123.xml

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 That a third of all forms become out of date before they're distributed?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.
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Norske Skog sees newsprint price hikes
By Camilla Knudsen and John Acher
http://www.reuters.com/article/Paper08/idUSLL26832820080822

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)

Death Watch in a Mill Town

Death Watch in a Mill Town

High oil prices may be the final blow for a legendary paper plant
By Alex Kingsbury
http://www.usnews.com/articles/news/national/2008/08/05/death-watch-in-a-mill-town.html

MILLINOCKET, MAINE-The name Millinocket comes from the Abenaki Indian expression for the "many islands," a fitting description of the region near the geographic center of th e state. It was the thousands of acres of timberland and the rivers, on which logs could be floated, that attracted the paper makers a century ago. But mention Millinocket in New England, and it's never clear if you're speaking about the town itself or its old industrial anchor, the Katahdin paper mill, once the world's largest paper producing facility. In fact, there was a time when most phone books on the East Coast came from the Millinocket mill.

The mill no longer holds that title, but its No. 11 machine still spins out more than a thousand miles of paper a day in rolls wider than a two-lane road, mostly for glossy circulars and magazines (including in the past U.S. News). That's more than enough to paper a highway from Boston to Chicago. It has been a mild summer and a relatively good one for making paper, with orders for the high-quality "supercalendared" stock flowing in. But the mill and the town are facing a hard winter. The abrupt jump in fuel oil prices has made paper production dauntingly expensive, perhaps too expensive to keep the mill going, while the soaring cost of home heating oil has made living here equally challenging for anxious millworkers and other residents.

Sitting in a conference room in the mill's ivy-covered, brick administrative building, located at one end of the town's main street, mill manager Serge Sorokin outlines the problem on a whiteboard. "This is what oil prices means for Millinocket," he says, writing with a red felt marker. "We use about 400,000 barrels of fuel oil per year, and 18 months ago, we bought it at around $40 per barrel." He writes the numbers on the board. "Now, the price per barrel is $110." Sorokin, who studied paper engineering at the State University of New York College of Environmental Science and Forestry, does the arithmetic and underlines the corporate bottom line: The annual cost of making paper went up here by $28 million.

But the bottom line that matters most here is that the mill could close within weeks, unless the company, Maine's governor, and its congressional delegation are able to find funding to help keep No. 11 rolling. Already, paper orders have dropped off because of the possible closing, and there is talk that skittish national retailers dropped plans to occupy some of the vacant space in the town's commercial strip. The company scraped together enough orders to keep the mill running through the end of August.

A sister mill in East Millinocket long ago supplemented its oil boiler with a biomass burner, which uses treetops and boughs as fuel. Normally, those cuttings are left on the ground when the timber is cleared. Not only does the sister mill still churn out phone-book paper, but it also produces more power from the biomass boiler than it can use, pumping some of the energy back into the power grid. For years, there's been talk of similarly adapting the Katahdin mill, but installation and retrofitting the existing equipment would cost millions of dollars and take time. "Biomass is an attractive option, but it's hard to see how we can get there from here," says Bill Manzer, a senior vice president at the Toronto-based Fraser Paper, which operates both facilities.

Social costs. Michael Michaud's first job in 1973 was driving a truck for the East Millinocket Mill. His father worked there for 40 years, his grandfather for 45. Now a Democratic congressman for Maine's Second District, he is working to find emergency funding to help keep the Katahdin mill open, to provide home heating oil assistance to low-income residents, and to help with the often overlooked social costs that come with layoffs. "When these things happen, there's an increase in alcohol and drug use, domestic violence, a loss of retirement savings, and higher healthcare costs that often get overlooked by people in Washington who may see more drilling for domestic oil as the catch-all solution," he says. Since he left the mill to run for Congress in 2002 (after serving part time in the state Legislature), he's still on the books as an employee on unpaid leave. "You want to be optimistic and give people hope," he says, "but it can't be false hope either."

Budgets are tight in Augusta, the state capital, and in Washington. While the congressional delegation will probably get the low-income assistance, it's unlikely it will be able to do much to rescue the mill. Besides, some argue that it's not the government's responsibility to bail out companies that, when prices were low, didn't modernize their machinery and diversify their energy sources. In the meantime, paper production shifted from American timberland to Asia.

Sadly, as goes the mill, so goes Millinocket, a company town built almost entirely by the Great Northern Paper Co. at the turn of the 20th century. Historically, it was hard to separate the two. At one point, for instance, a man named George W. Stearns was at once Great Northern's land agent, head of the town selectmen, the county judge, and the superintendent of schools. The town named the high school after him when it was completed in 1923, which was fitting because the mill donated a quarter of the construction costs.

For the better part of a century, Great Northern owned most of the land in northern Maine, much of which is still unincorporated. That kept out other employers, an unwritten company policy that held down labor costs but is now coming back to haunt the town. Even after decades of downsizing, the Katahdin mill, where employment has fallen from about 4,500 in the mid-1980s to around 200 today, is the second-largest employer, behind the regional hospital. Tourism now provides some jobs because the Appalachian Trail terminates atop Mount Katahdin, just a few miles outside town. In the winter, snowmobiling brings in the tourists, though high gas prices are likely to cut their numbers.

Like the mill, the town is showing its age. Under union rules, those with the least seniority (generally the youngest employees) were the first to lose their jobs. And many didn't hang around, instead taking their families to the coast or the southern part of the state, where the jobs picture was better. In 1990, the average age in town was 37. Now, officials say, it's around 50. The old George W. Stearns High School, meanwhile, long ago was converted into an assisted living facility.

"Future is bleak." Sitting in the cafe on Penobscot Avenue, a retired, second-generation millworker looks dubiously at his salad, poking it with a fork, and gripes. "Millinocket is turning into a retirement community," he says, glancing over at a group of young hikers scarfing down hamburgers before tackling the mountain. Then he whispers, "Don't you quote me sayin' it, though. This is a small town, and we stick together." Across town, the owners of Kim's Market on Medway Road shuttered their doors in July after a decade of serving sandwiches and beer to locals, but they don't want to say much either. In his downtown office, town manager Eugene Conlogue is less reticent. "The future is bleak for a community that only ages," he says.

Property values, for instance, have fallen as the mill's workforce has shrunk. Today, out-of-state residents own some of the town's Victorian-style homes and use them as vacation cabins. They often don't cut the grass or clean the clutter, and they don't send their kids to the local schools. For residents, this will be a particularly hard winter. A typical home along Penobscot Avenue burns about 800 gallons of fuel oil during a heating season. At current prices, that will come to $3,200 this winter, up from $1,700 a year ago. While that alone is a mighty hit to the family pocketbook, factor in high gasoline and food prices, and the impact can be devastating.

For the town, shuttering the mill would be catastrophic. The closure would cost the town some $2.5 million in taxes from the company that the community sorely needs, not to mention the scores of families who may leave town. Congressman Michaud remembers earlier hard times, soon after he first began working at the mill during the energy crisis in 1979. The mills were in danger then, too, because of rising oil prices, but managed to survive. As a result of that energy crisis, the East Millinocket mill put in the biomass boiler. If anything is to be saved from the Great Northern project, it will take the same Yankee ingenuity that a century ago harnessed waterways of the land of many islands to feed the paper mills.

The New Hampshire working forest is in crisis

The New Hampshire working forest is in crisis
By TOM THOMSON
http://www.unionleader.com


I HAVE OWNED forestland since 1956. When I was 11, my father encouraged me and my two older brothers to purchase a woodlot in our home town of Orford. We did, and we still own it and manage it as a sustainable forest today. Since then, my wife, Sheila, and I have purchased 2,800 acres of forestland. We have a couple of logging operations going on nearly every year.

As one who has been active within the forest community, I believe there is a crisis in New Hampshire's working forest. When I talk about the working forest community, I am thinking about the forest landowners, tree farmers, maple producers, loggers, truckers, foresters, chip and saw mills, wood-to-energy plants and all the employees, as well as all those businesses that support our forest industry, such as the equipment manufacturers, sales and part suppliers, banks and fuel suppliers.

The state Department of Resources and Economic Development (DRED) shows annual revenue of $1.2 billion just in the forest products industry. This number more than doubles when you factor in the dollar impact our forests have on recreation, hunting and fishing, tourism and other positive benefits to our state. This is one of the many reasons New Hampshire was just ranked as the most livable state in America.

Let's review some facts: In 2006-07 the Fraser pulp mill in Berlin closed forever. Three months ago, the Wausau paper mill in Groveton closed, and a few weeks ago cutbacks were announced at the Fraser paper mill in Gorham. Hundreds of mill workers lost their jobs. But that was only the tip of the iceberg. The men and women working in the forest, supplying the nearly 1.3 million tons of wood fiber to these mills, have also taken a hit. Some try to hang on; others are gone. With fewer loggers working, there are fewer logs available, which has put an additional strain on our saw mills, and if that isn't enough, the so-called environmental groups are suing the U.S. Forest Service and have all but stopped logging in the White Mountain National Forest, which many of our mills count on.

We have lost important low-grade markets and now we are losing our infrastructure. What's happening is not unlike what happened to the New Hampshire shoe industry decades ago, except the collapse of our forest industry and its connection to the many forest benefits would have a much greater impact on our state's economy.

Everyone in the forest food chain is being squeezed to the point of no return. As a forest landowner, I checked my stumpage values of more than 25 years ago and found that I received almost twice as much for hardwood pulp at that time than I do today. Loggers and truckers, mills and anyone else using diesel fuel at $4.25 per gallon (and climbing almost daily) are being crushed by these huge fuel bills, along with higher insurance, labor and equipment costs, with likely no chance of passing on these costs. This, along with ever-increasing state rules and regulations and added or higher fees, is having a crushing impact on our business and owning forestland.

Many who have been in this business all their lives say they have never seen things this bad. Others say in the past you could just work longer hours and seven days a week to make ends meet; but that won't work this time around.

We know the wood fiber is there. Forest landowners are unwilling to give their wood away; all we need is to have markets that pay everyone in the forest food chain their fair share, and you will see plenty of wood available.

We all have been hit hard by the energy crisis, but this crisis brings great opportunities for our state and the forest community by using low-grade forest products (our natural renewable resource) in a sustainable manner to produce a significant percentage of our energy needs here in New Hampshire, provide thousands of jobs and keep our energy dollars here at home. I call on Gov. John Lynch and all other elected or appointed state officials to become fully engaged in this important issue. We have reached a crisis in New Hampshire's working forest. We need to act now or our timber industry -- New Hampshire's oldest, largest continuous industry -- will be gone.

Tom Thomson operates the Thomson Family Tree Farm in Orford.

Newsprint Producer Fights To Avoid Becoming Another Bear Stearns

As AbitibiBowater, North America's Largest Newsprint Producer, Fights To Avoid Becoming Another Bear Stearns, Norway's Norske Skog Announces More Cutbacks, US Newspaper Groups Brag At Huge Newsprint Usage Declines, And China Ramps up Newsprint Production and Exports
BY Philip M. Stone

http://followthemedia.com/fittoprint/newsprint18032008.htm
The merger of Abitibi and Bowater last October was supposed to form North America's largest newsprint producer that could, with the cost savings a merger between two such giants should produce, finally get the upper hand on production and pricing. Instead its shares are down nearly 70% so far this year, off 15% alone on Monday because the markets don't think its recently announced $1.4 billion refinancing plan will fly.
Meanwhile North American newspaper groups are boasting to their shareholders about the cost savings they are making by using less newsprint.Gannett, the largest US newspaper publisher, reported newsprint expense declined 25.3% in Q4, 2007, due to usage prices that were 8% down, and almost 19 percent lower volume. At the New York Times Company newsprint expense for Q4 declined 30.3% with 16% coming from lower consumption and 14.3% from lower prices. Newsprint costs are thought to consume around 20% of a newspaper's costs.

Those savings did not come by accident. Newspapers have been very busy in the past few years cutting the width of newsprint from 15 inches down to 12 (38cm down to 31cms), converting to lighter weight paper, confining to the web financial tables that used to consume three or four pages daily, reducing the news hole, cutting back on distribution areas, dropping most bulks sales, not to mention the classified advertising debacle that has seen many metropolitan newspapers that used to run two or more sections daily of classifieds now down to just running a few pages. Add all of that up and no wonder newsprint consumption is down by double-digit percentage numbers.

AbitibiBowater has been busy since its October merger shutting down mills and reducing the workforce -- in February it sold a newsprint mill in Arizona and it's selling timberlands in the US and Canada as it attempts to pay off debt. In its first quarter as a merged company it reported a $250 million loss, with analysts basically saying all of its attempts to cut costs still have not caught up to the 12% decline in December newsprint usage over the year before.

And on the other side of the Atlantic, Norske Skog, Europe's largest newsprint producer and second globally to AbitibiBowater, says it has been hit by rising energy costs and lower newsprint demand. It announced last week it was cutting capacity by 7% -- shut 450,000 tonnes of newsprint production at three mills in Norway, the Czech Republic and South Korea -- as the company works on reducing its $3 billion (€2 billion) debt mountain. Its shares have sunk some 80% in the past year and are now selling at 20% of book value. It has quit paying dividends.

And the outlook for newsprint consumption in Western Europe, like in North America is not looking good. Europe is the leader in the free newspaper industry and one might have thought all of those free newspapers would have pushed up European consumption, but those free newspapers are only responsible for about a 5% uplift, according to the Pulp and Paper Products Council. One reason for that is that while there may be a lot of free newspapers, they are printed in mostly small A5 size (230cm x 320 cm - 9 inches x 12.5 inches). And making matters somewhat worse there is a "survival of the fittest" war going on with the weak free newspapers dropping by the wayside.

"Newsprint demand in Western Europe has held up due to growing consumption by free newspapers,"according to Emanuele Bona, European Vice President for the Pulp and Paper Products Council, but he sees storm warnings ahead. "The other key drivers of demand have been falling -- circulations of paid-for titles, pagination, and advertising spending on newspapers have all been weakening."

In his view Europe won't see any consumption increase this year, but he doesn't expect to see the decline that North America has been experiencing although there are storm warnings out there. "Now that the contribution of free newspapers to newsprint demand seems to be waning, as most markets become saturated, we don't expect to see any overall growth in consumption in Western Europe," Bona explained. But he warned, "The weakening economic environment will have a further negative influence on the circulation, pagination and ad pages.

"However, we don't expect Western Europe to show the sharp decline in newsprint demand that we have seen in North America (demand fell over 10% last year, and 33% or 4.3 million tonnes since 2000), but we can certainly anticipate the beginning of a structural decline on this side of the Atlantic as well," he said.

AbitibiBowater is trying to dig itself out its hole not just by reducing production but also by raising newsprint prices - a $60 a ton increase for Q1 seems to be holding bringing prices to around $620 a tonne and the company has announced a similar increase to be phased in during Q2. On the other hand, US newspaper newsprint consumption is expected to decline within a 9%-12% range this year.

The declining dollar is giving AbitibiBowater export opportunities - looking mostly to South American markets but also to India and Europe where prices are higher -- just what Norske Skog needs! "We intend to increase our newsprint export shipments in 2008 by nearly 10%," according to AbitibiBowater Chief Executive David Paterson.

Not to be discounted in all of this is China's announcement that its newsprint production - using new energy-efficient mills plus recycled raw materials - has risen 5.7% so far this year to 689,000 tons. There had been thoughts that China would find it worthwhile exporting to the US West Coast giving North American producers price competition they would not welcome, but the declining dollar probably has probably put an end to that and so the Chinese are looking more and more at India. The bulk of India's newsprint imports now come from North America.

It seems that few weeks go by without the announcement of another Indian newspaper launch. Domestic Indian newsprint consumption is currently thought to be around 2 million tonnes, but that is expected to grow in a year by about 20% as plans are announced for new publications as well as increasing pagination and the number of editions of current newspapers. Currently about half of the demand is met domestically - but not preferred for color printing on quality issues -- and in a country known for high import taxes, newsprint gets away with just a 5% duty.

Increased demand has led to higher prices and a spokesperson for one Indian publication said that whereas in Q4, 2007 the price was around $675 a tonne it is now running around $750 - $760 a tonne. Those types of prices make it profitable, for North Americans to export. According to Resource Information Systems, US East coast prices, ready for shipment, have risen from $608 a tonne to $710, and is expected to rise to $770 by Q3. The thought in India is that before this year is out prices will reach around $850. No wonder that is the world's newsprint export market of choice!

In India the higher prices are a bigger problem than elsewhere because wages are relatively low, so newsprint is responsible for up to half of a newspaper's costs, even more perhaps for smaller newspapers. The big guys will survive, but will the smaller newspapers?

Globally, according to RSI, demand at the beginning of 2007 was around 38.3 million tonnes, and the supply was some 2.2 million tonnes in surplus. That's why the paper companies have been busy shutting down mills and by now most of that spare capacity is gone - thus the climate for price increases.

The question now is whether AbitibiBowater, having done what is necessary to stay in business, now will have the finances to stick around and reap the rewards.

Weathering a Stormy Paper Market Forecast

Weathering a Stormy Paper Market Forecast
By Alex Brown
http://www.pubexec.com/story/story.bsp?sid=92793&var=story
What's behind the market's drastic changes, what to expect next, and how you can deal with higher prices and tight supply.

There's no sugarcoating it:
The paper market is bleak for buyers. The problems lie in both price and availability, and the forecast for 2008 has almost no bright spots. So, several questions have emerged: How did we get here? What can you do to cope with this new reality? What trends may affect paper purchasing this year and beyond?

First, it's easy to be puzzled by how the paper market changed so abruptly and intensely. Paper buyers have seen the dark clouds massing over the mills for years, but little has come of it. Why is it actually raining now?

In the last five years, we've seen several mill closures. Tembec and UPM closed mills, and other mills shut down individual machines. The net effect was a drop of at least 20 percent of North American coated-paper capacity. As the first of these closures occurred, paper availability might have tightened a bit, but there always seemed to be another ready source of supply.

Now the industry has finally carried its capacity reduction to a point that supply is constrained both here and in Europe. It moved in what looked like baby steps, but, in the end, a real distance was crossed. Depending on the specific stock, demand is now very close to or in excess of supply.


Let us consider the paper industry's perspective for a moment. If you've watched the market through several cycles, you've probably noticed that the mills seem to have forgotten a little section of "Economics 101"-namely, commodities prices can rise when demand exceeds supply. So why, you might have wondered, didn't mills limit capacity sooner?

We'll leave out some of the variables, but there are two key reasons why shutting down machines hasn't been a shortcut to profitability. First, the enormous capital costs of papermaking mean mills become profitable only when capacity utilization is extremely high. Roughly speaking, a mill might start turning a profit when it's producing about 95 percent or more of all the paper it could possibly make. Notice the limited upside, as well as the long, brutal road to profitability. The gap between losing money and making money is very, very narrow.

The second reason mills tend not to adjust capacity tightly to demand is that there are two levels of competition for the U.S.-paper dollar. Domestic mills battle each other, and then they balance foreign paper sources with all the extra complications of currency exchange.

For the last several decades, whenever demand edged sharply above U.S. capacity, European and Canadian mills were a handy safety valve. Asian and South American sources have also entered the mix. For much of this time, the dollar's currency strength has made exporters keen to court the large market in this country.

However, we've all but lost this safety valve against supply/demand tension now that the exchange rate with both the euro and the Canadian dollar is so poor. A Finnish mill would very much prefer to sell paper to Germans, in euros, than to Americans.

Then again, what exactly is a "Finnish mill" these days? The paper industry is consolidating into international entities. But that doesn't provide any relief under our current conditions. In fact, the consolidation is not merely a compression of sources, but a new style of ownership.

Five paper companies-NewPage (which has acquired Stora Enso North America), Verso, Catalyst, Pine Bluff and West Linn-are now owned by private-equity concerns. Add up the volume these mills represent, and you'll find that private equity controls 62 percent of the coated groundwood market in North America, and 57 percent of the coated freesheet.

These companies play by new management rules. They want return on investment, they want it promptly, and, presumably, they want to sell the underlying assets as soon as they're sufficiently buffed up to make the sale worthwhile.

To some degree, even paper buyers could benefit from the new management style. Perhaps an industry that's struggled for so long to scratch toward decent margins can and should be shaken up. But it's fair to say that the new trends in management, which may spill over to other, publicly traded mills, are not designed to ease the buyer's sufferings. If a price increase can be supported, a price increase will be made.

So that's how we got here: reduced supply, the falling dollar and private-equity ownership. These conditions justified price increases, and mills have shown the fortitude to demand them.

Are the mills happy yet? Not really. Despite the 2007 round of price hikes, increases in the direct costs of papermaking have munched up much of the revenue. Fuel oil, which affects both papermaking and shipping, is the main villain, but raw materials' prices have also been increasing. In short, if the market can support further price increases, they're on the way. Look for bumps in April and, perhaps, July.

What's the Buyer To Do?
The paper buyer is left without many tactics. In broad terms, the only force that can mitigate the current paper price increases is a drop in demand still greater than the so-so to negative growth we've been seeing in the magazine and catalog markets. So, this is good news/bad news time: If your pages and counts drop still more, maybe the mills will ease off, but then your pages and counts will have dropped. If you're growing or holding your own, it may be difficult to get paper, but you'll be growing. If a lot of us are growing, prices are going to keep rising.

Let's break out the emergency flotation devices, then. To fight the impact of price increases, you can reduce basis weight, trim size, paper grade or, of course, pages and copies.

Cutting basis weight will work just fine, provided your new weight is available. Because we're struggling with both price increases and supply shortages, check the practicality of your new spec before announcing to the publisher that changing from 38 pound to 35 pound saves 8 percent. Be sure that the mill makes the weight you want, as plenty of them have basis-weight preferences.

A trim-size cut means the art staff and ad-traffic team must update templates and revise the specs in media kits. There's some work and cost to be considered right there, and it's only worth spending if you have your printer's cooperation. Switching to short cutoff presses, for example, only works if there is capacity. Publications that use a wide, 9-inch luxury format can make the change by ordering a new roll width, but if that distinctive trim size is key to audience and advertiser appeal, consider this carefully.

Changing paper grade can save a great deal, as long as it doesn't require throwing the baby out with the bath water by harming your publication's stature. If you're already on a #5 grade, the next train leaving the station is supercalendared stock. This paper performs quite differently, and you'll need your printer's commitment to make it work. Brace yourself for an increase in ink costs, as the more porous surface absorbs more. Finally, any grade change may cause you supply problems when adjusting your allocation.

Despite the caveats, all three of these adjustments can be smart techniques for controlling costs today. Make sure they suit your product and your audience, and get your printer and paper supplier to help carry them to fruition.

The other key concern is guarding your ongoing paper supply. It's safe to say that mills have taken on a go-ahead-make-my-day demeanor-if you fight too hard for better prices and terms, the mill doesn't mind an excuse to cut your allocation. Tread cautiously.

As business practices become increasingly hard-nosed, it's almost quaint to imagine that business relationships still matter. Private-equity owners are ready to be just as cutthroat as you are, so good, old relationships don't count for as much as they used to. But with the magnitude of supply cuts now and in the immediate future, a good connection with a mill or broker is one of the few shelters in this storm. You might even want to pick up the tab for lunch.

Looking Ahead
The dollar is almost certainly going to continue its swoon, so don't look for much help from Europe. Asia, however, appears to be another matter. The currency problem is just as nasty against the yuan, but China and Indonesia have shown a strong interest in cracking our mighty market.
Will shipping Chinese paper across an ocean and half a continent fix things? Not so fast. The price of pulp is higher in Asia, where fiber sources include imported pulp. Asian mills began introducing their wares at startlingly low prices, but have steadily edged upward and no longer look like a bargain. The currency exchange problem and the threat of a future tariff all suggest that Asian papers will not radically alter our paper landscape.

Our ace in the hole, it's sad to say, is a continued drop in demand that forces mills to choose between cutting still more capacity and selling at prices more favorable to buyers. Needless to say, a drop in demand comes along with lots of other depressing baggage, including the sight of publishers falling by the wayside. But those who remain strong may be able to reap benefits. In other words, the publishing market may experience its own shakeout, courtesy of rising paper prices-and let's not forget the hike in distribution costs that completes the one-two punch.

The major question is not how much mills may raise prices, but how gradually. If private-equity thinking leads the way, we may see a steep curve upward, sharp enough to kick some buyers out of the market, or constrain growth. The resulting drop in demand could kick right back at the mills. If mills take it slowly, they might end up with both profits and customers.

Prepare for more increases this year, inventory your specifications to see if you can change what you buy, and pay attention to your supplier relationships to keep the paper flowing. These are challenging times, but smart paper buyers will survive them.

Alex Brown is a consultant to magazine publishers specializing in manufacturing and magazine management. She founded her consulting company, Printmark, in 1984, and is a frequent speaker at industry events.

NewPage Announces Integration Restructuring Plans

NewPage Announces Integration Restructuring Plans

MIAMISBURG, Ohio, Jan. 16 /PRNewswire/ -- NewPage Corporation announced today key steps being taken to integrate NewPage and the former Stora Enso North America (SENA) facilities and services.

The specific restructuring actions are as follows:

Permanently close the No. 11 paper machine in Rumford, Maine, which produces coated freesheet and groundwood papers for magazines and catalogs, by the end of February 2008. Approximately 60 employees will be affected by the shutdown.

Permanently close the pulp mill and two paper machines, Nos. 43 and 44, in Niagara, Wisconsin, by the end of April 2008. The Niagara machines produce 230,000 tons of lightweight coated groundwood papers used in magazines and catalogs. Approximately 319 employees will be affected by the shutdown.

Permanently close the No. 95 paper machine in Kimberly, Wisconsin, by the end of May 2008. The Kimberly mill produces coated freesheet papers for publication printing, and specialty papers for pressure- sensitive or glue-applied labels. Approximately 125 employees will be affected.

Permanently close the Chillicothe, Ohio, converting facility by the end of November 2008 after some of the converting machines and volume are transferred to existing facilities in Luke, Maryland, and Wisconsin Rapids, Wisconsin. Approximately 160 employees will be affected.

Products produced on the closed machines will be transitioned to more efficient paper machines within the company's integrated mill system. "In addition to the changes to these operations and their employees, we are also informing personnel in all areas of the company such as sales, finance and other support functions of the longer term plans for their departments," added Suwyn. NewPage is taking appropriate actions to assist the affected employees with new opportunities or benefits packages.

"These actions come from an extensive integration plan developed by a group of nearly 50 people from both companies and represent all the significant actions we expect to take to combine the two operations. We do not anticipate any further steps related to the integration," said Willett. "Right now the market is strong and we do not anticipate taking any market- related downtime which would be separate from these actions."

"NewPage is combining its business with SENA with the vision of becoming the best printing paper company in North America," said Mark A. Suwyn, chairman of the board and chief executive officer of NewPage. "These restructuring decisions will create the platform essential to become one company, remain competitive in the marketplace, serve our customers more efficiently and reach $265 million of synergies we have committed to achieve. Despite the permanent closures being announced today, we are merging the operations in a manner that will actually increase our 2008 North American production by 3-8% compared to the combined production in 2007."

"At NewPage, we remain committed to our customers and we will continue to offer a broad portfolio of printing papers such as coated freesheet, lightweight coated groundwood, supercalendered paper and specialty products to meet a wide variety of needs," said Rick Willett, president and chief operating officer. "We believe our customers will benefit from our closing slower, lower volume, less strategic machines and moving affected grades to machines that can manufacture them most efficiently, yielding a higher quality, more consistent product. Closing one of our converting facilities and transitioning sheeting operations will result in better geographical distribution, more capacity for sheets, faster turnaround and delivery times for custom sizes, and a wider range of sheet sizes."

UPM removes significant magazine and newsprint capacity worldwide

http://www.forbes.com/HELSINKI (Thomson Financial) - UPM-Kymmene said it will permanently close its Miramichi mill in Canada as part of a plan to slash magazine and newsprint capacity and cut yearly costs between 50-70 mln eur.

The world's largest magazine paper manufacturer is closing Miramichi as the strength of the Canadian dollar has made UPM's exports to the US unprofitable.

Some 540 jobs will go, with the group expecting to take a 105 mln eur hit during the fourth quarter.

The move will also have a cash flow impact of 80 mln eur over 2008-09 and result in tax charges of 15 mln eur.

Miramichi, which has an annual capacity of 450,000 tonnes of magazine grades, has already been at a standstill since August.

Jyrki Ovaska, the head of UPM's magazine paper division, said: 'During the temporary shutdown, we have investigated several business solutions to make the Miramichi operation viable. Unfortunately, the current business environment leaves us no options.'

UPM said it would also trim newsprint capacity temporarily by shutting down a newsprint machine at its mill in Kajaani, Finland, for ten months, and one machine in Steyrermuehl, Austria, for two months.

Those measures, designed to trim its 2008 newsprint capacity by 250,000 tonnes, will be put in place during the first quarter of next year.

The cuts are the latest in a series of measures taken by key forestry industry players in a bid to tighten supply and boost prices amid rising raw material costs.

UPM said rising wood, recycled energy and energy costs means the current quarter will be its worst this year, though it is projecting full-year operating profit, stripping out special items, to be up on 2006.

The group said it will also reduce capacity of label papers by shutting one machine in Jamsankoski and one in Tervasaari, both in Finland, for up to three months.

On top of those cuts, three old self-adhesive label lines in Tampere, Finland, and one in Melbourne, Australia, are to cease production, while it is considering closing a timber components and planing mill in Luumaki, in Finland.

Also under review are sawmills and woodland it manages under license located close to Miramichi.

All-in-all, some 680 people are expected to be made redundant, with a further 270 to be out of work during the temporary shutdowns.

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UPM removes significant magazine and newsprint capacity worldwide

HELSINKI, Dec. 17, 2007 (Press Release) - Following the review of its asset portfolio against the current cost and business environment, UPM has decided on several courses of action, including removal of production capacity.

The Company today announced the following:

Removal of 450,000 tonnes of magazine paper capacity by permanently closing the Miramichi paper mill in Canada

reduction of 250,000 tonnes of newsprint capacity through the temporary shutdown of one paper machine in Kajaani, Finland, for ten months, and one machine in Steyrermühl, Austria, for two months

reduction of label paper capacity with the temporary shutdowns in Finland of one paper machine in Jämsänkoski and one in Tervasaari, both up to three months

rationalisation of the Company's self-adhesive label materials operations by closing three old coating lines in Tampere, Finland, and one coating line in Melbourne, Australia, and

commencing negotiations with employees on the possible closing of the timber components and planing mill in Luumäki, Finland.


With the exception of Miramichi and Tampere, all the above measures still require negotiations with employees according to the national practices in respective countries.

The decisions are based on UPM's view of the markets and cost competitiveness of the assets. We estimate that next year demand growth will be slower than in 2007 and in the beginning of the year meaningful price increases can be achieved mainly in magazine papers. At the same time the industry will face higher costs of wood, recycled paper and energy. The full year 2007 operating profit, excluding special items, is forecast to exceed that of 2006. The cost development is, however, visible already during the current quarter which will be our weakest quarter of the year.

The annualized cost saving is estimated to be in the range of Euro 50 - 70 million, mainly consisting of reduced wood, recycled paper, energy and personnel costs.

Due to the closure of the Miramichi mill, UPM will book in operating profit costs of approx. Euro 105 million in Q4 of 2007, majority of which will impact Magazine Papers Division. The cash flow impact is estimated to be Euro 80 million during 2008-2009. In addition, income tax charges of approx. Euro 15 million will be recorded from the reduction of deferred tax assets in Canada.

Actions related to magazine papers

UPM will permanently close its paper mill in Miramichi, Canada. The Miramichi mill has been temporarily shut down since August 2007.

"During the temporary shutdown, we have investigated several business solutions to make the Miramichi operation viable. Unfortunately, the current business environment leaves us no options," says Jyrki Ovaska, President of UPM's Magazine Papers Division.

The record strong Canadian dollar has made the export of Miramichi paper to the United States market unprofitable. The Canadian currency has gained 25% this year. The increasing cost of essential raw materials such as wood and chemicals has offset the benefit of price increase for magazine paper. Demand for magazine paper grades in North America has been stable, but globally, there continues to be overcapacity in magazine papers.

UPM has permanently ceased production of 980,000 tonnes of coated magazine paper in 2006-2007 to reduce the structural overcapacity and improve profitability of the business. Near Miramichi, UPM operates two sawmills in the communities of Blackville and Bathurst, and manages woodlands under Crown forest licenses. The future of these operations is under consideration.

UPM's North American customers will continue to be served by the Company's coated groundwood paper mill in Blandin, Minnesota, USA, and UPM's paper mills in Europe.


Actions related to newsprint

UPM will reduce its standard newsprint production capacity in 2008 by 250,000 tonnes by temporarily shutting down one paper machine (PM 4) in Kajaani, Finland, for ten months and one paper machine (PM 4) in Steyrermühl, Austria, for two months, starting during the first quarter of 2008.

Furthermore, the cost competitiveness of the Kajaani mill will be improved by streamlining and reorganization which will result in permanent headcount reduction.

"Shutdown for almost a year is an unconventional measure. However, we foresee a changing newsprint market situation in Europe in 2008. The demand growth for standard newsprint is currently flat in Europe, and with continued imports from North America and a decrease in exports to Asia, the European newsprint market is not in balance. Therefore, we need to take action," says Hartmut Wurster, President of UPM's Newsprint Division.


Actions related to label papers

UPM will temporarily shut down two label paper machines for up to three months, one in Jämsänkoski (PM 4) and one in Tervasaari (PM 5), both in Finland. In label papers, there is overcapacity in Europe and the strong euro makes the current exports unattractive.

Actions related to wood products

UPM will start negotiations with employees on the possible closure of the timber components and planing mill in Luumäki, Finland. The financial performance of the mill has been negative and the market outlook for 2008 will remain weak. The closure of the Luumäki planing mill relates to UPM Timber's plans to centralise its planing operations.

Actions related to self-adhesive label materials

UPM will rationalise its self-adhesive label materials production at its Tampere factory in Finland by closing three outdated coating lines, no later than in March 2008.

In addition, UPM will shut down a self-adhesive label materials production line at its factory in Melbourne, Australia. The specialty products produced on this coater have been transferred to other production lines. The Melbourne factory continues to serve the Australian market with a combination of locally produced products and imports from other Asian factories.

Impacts on personnel

UPM estimates that these measures will reduce the number of the Group's personnel by approximately 680, mainly caused by the permanent closure of the Miramichi mill (540 persons), streamlining and reorganisation of the Kajaani mill (60 persons) and the possible closure of the Luumäki mill (50 persons). Rationalisation of the self-adhesive label materials operations in Tampere, Finland, and Melbourne, Australia, will reduce the headcount by about 30 persons.

In Kajaani, Jämsänkoski and Tervasaari, negotiations on possible temporary layoffs will be started with employees. Temporary layoffs are estimated to affect approximately 110 persons at the Kajaani mill. At the Tervasaari mill in Valkeakoski, the temporary layoffs are estimated to affect approximately 90 persons and at the Jämsänkoski mill approximately 70 persons.