AbitibiBowater kicked off the strange doings last month when it revealed to a bankruptcy court that it owes $62 million to the Finance Authority of Maine. How did that happen? The company has no operations in Maine.
But the silliness was really concentrated in the coated portion of the industry, where demand dropped a record 32% in the first quarter versus last year and shows no signs of bouncing back. In light of that sorry state of affairs, consider the following recent headlines:
- Sappi filed plans with the state of Minnesota to build a huge coated-paper machine at its Cloquet mill. If press reports are to be believed, the machine would have capacity to make about 700,000 tons per year, nearly double that of any competing machine on the continent. This is the same Sappi that just reported a quarterly loss and said it expects to idle even more machines because of declining demand.
- An investment group announced it is spending $62 million to buy and upgrade Tembec’s shuttered
coated-paper mill. That operation was a money loser even before the latest wave of reduced demand and capacity shutdowns. How can it survive now? St. Francisville, LA
- Former employees of NewPage’s closed
mill are mad that the company would sell the operation only to someone who would not make coated paper there. NewPage closed the high-cost mill to ease the continent's oversupply of coated paper, where it holds the #1 position. Why would anyone dream that it would undo those efforts at market stabilization by selling to a competitor at a fire-sale price? Kimberly, WI
- Capping off the silliness was Verso's revelation Thursday that the federal government paid it nearly $105 million last quarter in "black-liquor" credits. During most of the quarter, the company's stock was worth less than half that amount.
The new owners of St. Francisville may also be grabbing for those credits by just reopening the pulp mill. And perhaps they will convert the mill to make some other product, such as linerboard or biofuels. It’s hard to envision 60# coated #3 being made again at the high-cost mill.
The Kimberly workers? They were obviously not able to read the writing on the wall that the plant had been in bad shape for nearly a decade -- or that, unlike previous owners (Repap, Consolidated, StoraEnso), NewPage tends to euthanize terminal cases, not put Band-Aids on them.
And don't ask me to explain the logic behind the federal government paying perhaps billions of dollars this year in alternative-energy credits to Verso and other U.S. companies for using black liquor as fuel -- something kraft pulp mills around the world have been doing for decades. There is no logic.