Saturday, January 3, 2009

Port Hawkesbury's Near-Death Experience

Last year was a disaster for many North American paper mills but saw a spectacular turnaround for one -- NewPage's Port Hawkesbury, Nova Scotia mill.

When NewPage bought the mill, along with seven U.S. mills, from Stora Enso just over a year ago, Port Hawkesbury's mayor said he was "scared to death" about the mill's future. Even before the NewPage deal was announced, some customers shifted business to other mills, not wanting to rely too heavily on an operation that was reportedly losing money and seemed likely to be shut.

Now both the supercalendered (SCA) and newsprint machines at the mill seem to be running close to full and the mill is actually doing something almost unheard of these days -- hiring new employees.

The change of fortune for the supercalendered (SCA) and newsprint mill can be explained largely with two words – loonie and Katahdin.

Shortly before NewPage completed the acquisition of the mill just over a year ago, it noted that Port Hawkesbury was unprofitable because most of its expenses were in expensive Canadian loonies but most of its revenue was in cheap U.S. dollars. Since then, the loonie has weakened about 20% versus the U.S. dollar.

The closure of Katahdin’s supercalendered (SCA) mill in Millinocket, Maine this past summer kept the North American market for SCA firm despite declining demand. Katahdin, controlled by Brookfield Asset Management, has said it would reopen the mill if it can retrofit its inefficient oil-fired burner with a biomass gasifier that would enable it to generate electricity for sale. (See "Katahdin may enter green energy business.") But unless Millinocket is sold to another paper maker, Katahdin’s erratic marketing and poor communication with customers will make restarting the mill difficult despite its modern technology, high-quality paper, and high labor efficiency.

Rising prices for coated groundwood paper pushed some users to look for savings this year by switching to SCA. Port Hawkesbury's world-class SCA machine is noted for heatset-offset products that look and perform like coated groundwood -- with similar inks, press speeds, and waste levels as coated #5 paper.

Unlike the SCA machine, Port Hawkesbury's older newsprint machine did not seem to have any competitive advantages. After a labor dispute and high energy costs idled the mill for most of 2006 and caused Stora to abandon the North American newsprint market, prospects for the newsprint machine seemed especially bleak.

But even that albatross is flying. NewPage has developed a high-bright newsprint that can run on heatset-offset presses, making it a competitor to the sort of soft-nip and low-grade supercalendered papers often used for fliers and newspaper inserts. Mill closures and changes – such as Irving Paper’s virtual abandonment of SCC and SCB to make higher-priced SCA – opened up opportunities for the Port Hawkesbury product.

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