AbitibiBowater says no way for Nuway

AbitibiBowater is finally giving up on a nine-year effort to turn base stock from newsprint machines into lightweight coated paper.

The company announced yesterday the closure of its Covington, TN converting facility, where it has the capacity to make 70,000 tons per year of lightweight coated paper using base paper from other mills. As a result, the company will no longer try to make LWC lighter than 36#.

The failed venture goes back to the Nuway technology Bowater purchased in 1999 with hopes of getting into the LWC business. It has what is probably the country’s most efficient coated-groundwood machine in Catawba, SC, but the Southern pulp used there is not suited to ultralight grades.

Bowater’s idea was to make base paper from a newsprint machine in Thunder Bay, Ontario (where it had considered putting in a full coating operation) then ship it to coating facilities near major U.S. printing plants, where it could be converted to coated groundwood on an almost just-in-time basis.

The product got a black eye in the business when Bowater rushed it to market, only to learn that it did not run well on heatset web offset presses. Holes that were acceptable for newsprint on coldest presses turned out to be too large and numerous for coated paper on heatset presses. When printers realized Bowater was using them to beta-test an unproven technology, they discouraged or banned their customers from buying the paper.

Bowater went back to the drawing board to fix the sheet and to develop various products with the Nuway technology. At various times, Bowater and the post-merger AbitibiBowater tried making discounted #5, regular #5, #5 with recycled content, and #4, under a variety of names including the ultra-sexy “AbiBow EcoGloss.”

With the Canadian currency having become so weak, it’s hard to see how Covington could compete with the low-cost Canadian machines at Kruger and Catalyst, which can coat and calender LWC in one pass. And the collapsing LWC market is hardly worth fighting over.

The Covington closure was part of a larger package of 1 million tons of annual capacity, mostly newsprint, that AbitibiBowater announced yesterday it is closing or idling. The stock market reacted negatively, with the stock closing at at 45 cents per share yesterday (low enough that the Quebecor money referenced in Monday’s post would have been enough to buy control of AbitibiBowater), then bouncing back to close at 48 cents today.

The closures and idlings are actually a sign of strength. With a current ratio (current assets to current liabilities) of only 1.07 at last report and big debt payments coming due in a few months, there was a danger that the company would have to keep all cash-positive newsprint machines running even if that caused prices to plummet. By idling so much newsprint capacity yesterday, North America’s dominant newsprint maker demonstrated that it still has the financial strength (or lenders’ patience) to exercise market discipline.