Tuesday, March 16, 2010

Is Domtar's Exit a Game Changer for Coated Paper?

Today we discovered what NewPage had up its sleeve when it announced a price increase for coated groundwood paper on Friday: It knew that Domtar was about to close its Columbus, Mississippi mill.

The two companies revealed today that Domtar next month will permanently close the mill, which has a single machine with the capacity to make 238,000 tons annually of medium-weight coated #5 and #4. NewPage will buy the product lines and trademarks, though it’s not clear whether it will continue to make Choctaw and the other products on its own machines.

The simultaneous news releases this morning were seemingly followed every hour by another North American mill announcing a $30-per-ton price increase on coated freesheet, coated groundwood, and/or supercalendered papers. Even AbitibiBowater, which postponed a price increase on CGW only a week ago because most competitors didn’t go along, came back to the price-increase party and brought supercal along.

One industry watcher called the closing of the Columbus mill “a game changer” because it might finally bring the CGW market into balance.

And another asked a question I can’t answer: If indeed NewPage is about to run out of money (see today's earlier article, Are NewPage and Verso Headed to the Altar?), how could it afford to buy Domtar out of the coated paper business?

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Anonymous said...

Newpage will only pay about $10 million, and they just raised $70 from an add-on offering to their 1st lien senior secured bonds. The announcement seems to do more to indicate weakness in the market than strength, as CGW is still oversupplied.

Anonymous said...

Newpage did not need to buy Domtar's order books and grades. They know who the customers are. The $10 million is more likely an inducement to help Domtar decide to close its mill, a decision that was already being promoted by the spike in pulp costs for the pulp Domtar buys from Weyerhaeuser. With Newpage having the capacity to produce some 1.5 million tons of coated mechanical and 1.8 million tons of coated freesheet, even a $5 or $10 improvement in average prices will make a good return on their $10 million investment.