"Black Liquor" Credits Are Helping Paper Buyers

The “black liquor” tax credit is driving down paper prices, according to NewPage, North America’s largest maker of coated paper.

The company’s average selling price for coated paper probably declined by $40 to $50 per ton in the 2nd Quarter from its 1st Quarter level of $975 per ton, NewPage revealed in a recent financial report. The number of tons sold actually inched up.

“We believe that pricing has declined primarily as a result of producers passing on the benefits of the alternative fuel credit to customers,” the report said.

No, NewPage hasn’t suddenly turned into a naïve bleeding heart that thinks its competitors are generously sharing their new-found riches with customers. The point is that the tax credits give U.S. companies a huge incentive to keep their kraft-pulp mills running full bore and then to turn that pulp into paper, even if it has to be sold at rock-bottom prices.

The credits, originally intended to subsidize non-petroleum motor fuels, are being granted to owners of U.S. kraft pulp mills for using black liquor, a pulp byproduct, as an energy source. Analysts have estimated that the program, scheduled to expire Dec. 31, will hand out $6 billion to $8 billion this year to U.S. pulp mills for doing something that has been common industry practice for decades. (For more on the black-liquor program, see "Pulp Fiction: Eco-Credits for Black Liquor" and "Why U.S. Pulp Mills Are Like NBA Players"

NewPage isn’t exactly complaining about the IRS’s sudden largess. The struggling paper giant is in the process of renegotiating its debt, in some cases paying about 50 cents on the dollar, in a way that Standard & Poor’s has dubbed “tantamount to a default.” So its $67 million in 2nd Quarter black-liquor credits, about 9% of revenue, was certainly welcome, especially because it was the difference between a huge loss and nearly breaking even.

The report suggests NewPage has shifted to making a higher proportion of papers that use a lot of kraft pulp. By most accounts, prices for various grades of coated paper declined by at least $60 per ton, and in some cases $100 or more, during the second quarter.

So NewPage’s decline of only $40-$50 per ton suggests it is making more high-priced, kraft-intensive papers like coated freesheet and less heavy coated-groundwood papers that contain little if any kraft.

There has been some talk of paper prices stabilizing or even rising in the second half of this year. But as long as there's a roughly $200-per-ton subsidy on kraft pulp and plenty of excess capacity, don't expect mills suddenly to become more disciplined about taking downtime rather than chasing deals at low prices.

Getting Noticed, Getting Ignored

Tired of reading my articles on this cheap-looking blog?

Now you have a chance to read some of my stuff at real Web sites -- "real" as in they have corporate sponsors and are created by companies with full-time employees and actual business models.

WhatTheyThink?, the respected Web site covering the printing industry, has posted "Newspaper Production Enters Colorful, Outsourced Era" on its PrintCeo site. (The original is here.) They even figured out how to put the San Francisco Chronicle's video with the article. And don't those ads from the likes of Kodak and Presstek look much prettier than some of my cheesy-looking Google Adsense ads?

RISI, the leading information provider to the paper industry, has posted "Smackdown: Printed Editions vs. Digital Editions" (the original is here). They even created a neat little logo for Dead Tree Edition, though that tree looks suspiciously alive to me.

WhatTheyThink?'s Going Green site has also recognized the smackdown article with very favorable commentary, followed by insightful reader comments.

It never fails to amaze me which articles get multiple links and five-figure audiences -- and which get ignored.

Last week's article about the possibility of emergency increases in postage rates next year has been cited by numerous Web sites I've never even heard of -- and ignored, as far as I can tell, by every major publication and Web site serving industries that rely on mail.

Unless you count Folio:, the bible of the magazine industry. It posted an article yesterday referencing "speculation" about an exigent rate increase of 2% to 3% or maybe an increase of the First Class stamp to 50 cents. I think those are obvious references to my article (Do you agree?), but the Folio: piece never mentions Dead Tree Edition.

Now about those Google ads. I find it interesting to watch Google try to deliver ads that are "context sensitive" and to see how those ads perform -- or don't perform. And getting a few bucks from Google every once in awhile helps me respond when my roommate/partner asks, "Exactly why are you putting all this time into your blog?"

I think I actually came close to earning minimum wage on one quickly written piece -- "Monkeying Around With Postal Pallets". It was a surprise hit among disgruntled postal workers (Are there any gruntled postal workers?) who had fun comparing the orangutans to certain members of Postal Service management. It got more than 20 times as many "hits" as my piece about Twitter quitters, which I thought was much funnier.

You just never know.

Postal Officials Ponder Emergency Rate Increases

Postal officials are spreading the word that they may seek emergency rate increases next year.

Various scenarios have been bandied about, including one that would raise the price of the 44-cent First Class stamp to 50 cents and other rates by similar amounts. But after several meetings with postal officials, the Direct Marketing Association is telling some members that the Postal Service is more likely to seek an "exigent increase" of only 2% to 3%, including only one cent for the First Class stamp, to help shrink its multi-billion-dollar losses.

Annual increases in most postage rates are generally capped by changes in inflation. Postal officials are realizing that deflation, especially the drop in energy prices since last summer, will probably mean no such rate increases next year, according to accounts coming out of meetings with postal officials. As Dead Tree Edition pointed out recently, USPS will not be able to institute normal rate increases in May 2011 unless the Consumer Price Index rises at an annualized rate of nearly 5% for the rest of this year.

That's why postal officials are pondering an unprecedented "exigency-based" rate adjustment, which postal regulations allow "only when justified by exceptional or extraordinary circumstances." Postal Regulatory Commission rules would also require USPS to discuss the circumstances leading to the proposed increases and "whether the circumstances were foreseeable or could have been avoided by reasonable prior action."

The PRC would hold a public hearing on an exigent rate request and by law would have 90 days to decide whether "such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain" appropriate service levels.

The Postal Service, which is supposed to break even, is projecting a loss of about $6 billion this fiscal year. To close that gap, which USPS says will grow unless it takes drastic action, postal officials are also discussing plans with mailer groups and postal unions to transition to five-day delivery in the fiscal year that starts in October 2010. That would require Congressional approval.

The closing of thousands of post offices is a possibility, the consolidation of processing and distribution centers has recently accelerated, and USPS continues to shrink its workforce -- all in response to declining mail volume that is causing the budget shortfall.

The meetings have also been an attempt by postal officials to shore up union and customer support for legislation that would reduce USPS' unusually high pre-payments for retiree health care. The Congressional Budget Office estimates H.R. 22 would save USPS about $2.5 billion annually for the next three years.

Quebecor World Exits Bankrupty With a Familiar Name

Quebecor World went back to the future today, emerging from bankruptcy protection under the new but old name "World Color Press".

World Color Press and Quebecor Printing merged a decade ago to form Quebecor World. The company is changing its name to distinguish itself from its former parent, Quebecor Inc., a Canadian media company whose stake in the old Quebecor World is now worthless.

The new World Color Press is now owned mostly by the former lenders and other creditors of Quebecor World. The largest stockholders are Societe Generale, a Montreal-based bank, and Catalyst Fund Limited Partnership of Toronto. With the emergence from bankruptcy reorganization, a new board of directors chaired by Mark A. Angelson -- former CEO of printing rival R.R. Donnelley -- is now setting the company's direction.

The company's announcement said it obtained $800 million in exit financing, about two-thirds of which was used to pay off the special debtor-in-possession financing that kept it going while in Chapter 11. It also said World Color Press stock should begin trading on the Toronto exchange within 30 days.

Quebecor World had originally chosen "Novink" as its new name, but a QW official confirmed to Dead Tree Edition on Sunday that it dropped that name because of negative customer feedback. "Novink" appears in the names of many World Color Press subsidiaries. For example, the legal name of Quebecor World Logistics is now Novink Logistics LLC, though I suspect "World Color" rather than "Novink" will be used in the branding of the subsidiaries.

Quebecor World Ready To Abandon "Novink" and Bankruptcy Protection

Quebecor World will exit from bankruptcy protection this coming week, but not under the widely reported name "Novink," according to a company official.

"We will exit in the coming week," the official told Dead Tree Edition today, taking issue with my article from two days ago suggesting that the company's bankruptcy reorganization has been delayed.

It's true that nothing in the court documents describing the July 27 hearing about the "$1 press" says that the hearing must be held before Quebecor World can exit from bankruptcy protection. It is common in Chapter 11 cases to have some individual claims settled after the company exits from bankruptcy protection, someone pointed out.

Given Quebecor World's size and apparent value, none of the claims to be resolved in the bankruptcy case seems large enough to be a show stopper. And nothing says Quebecor World will close up shop or turn into a pumpkin if its reorganization is not consummated by midnight Tuesday, when its debtor-in-possession financing is set to expire. Financing deals can be extended.

Responding to customer feedback, Quebecor World has decided not to rename itself Novink when it emerges from bankruptcy protection, the official said. Some reports indicated the name was to be prounounced "new-vink" as a bilingual combination of "nouveau" and "ink".

It seems that the name was about as popular as le turd dans le punchbowl, if you follow my attempt at combining French and English. (Perhaps QW officials were concerned that French-challenged Americans would mispronounce the name as "Newsweek", which according to Gawker has not exactly been a model of humane or rational management the past few days.)

What is clear is that this is a complex case involving scores of subsidiaries and pension plans, as well as the coordination of bankruptcy courts and laws in the U.S. and Canada. That complexity has often confounded observers, such as those of us who thought R. R. Donnelley's first "stalking-horse" bid was a slam dunk because we overlooked the critical issue of timing.

What also seems clear is that the company will be free of much that weighed it down before its Chapter 11 filing, including a heavy debt load and its money-losing European operation. And the choice of Mark A. Angelson, the acquisition-minded former Donnelley CEO, to become chairman of the new company suggests that things could get interesting for the North American printing industry.

Quebecor World's Reorganization Delayed?

Please see "Quebecor World Ready To Abandon 'Novink' and Bankruptcy Protection", which clarifies and updates the information in this article.

Quebecor World's emergence from bankruptcy protection has apparently been delayed a couple of weeks, at least partly by a $1 printing press.

The big printing company had hoped to exit Chapter 11 (and the Canadian equivalent) this week with a new name and new board of directors, but a U.S. bankruptcy court has scheduled a July 27 hearing in the case. That is six days after the company’s debtor-in-possession financing is scheduled to expire.

Quebecor World has been silent about the case since announcing on July 2 that U.S. and Canadian courts had approved its reorganization plan and that it "anticipates the consummation of the Plans to occur in mid-July 2009."

The mainstream news media widely reported that announcement without noting, as Dead Tree Edition did, that there were still hurdles to clear. (So this is business journalism in the 21st century: One of the biggest bankruptcies in Canadian history is covered by professional reporters relying solely on news releases -- and a sleep-deprived amateur trying to make sense of dense legal documents.)

Despite various motions and hearings this week, the status of the joint Canadian-U.S. bankruptcy case is a bit murky. Quebecor World worked out a disagreement with a group of lenders and has tweaked the reorganization plan to settle some small claims. But at least one settlement would apparently affect the creditors enough that they must be given a chance to object – thus the July 27 hearing.

The settlement involves Quebecor World’s lease of a flexographic press in Merced, CA from Banc of America Leasing & Capital (which, despite the half-French, half-English name, is neither Canadian nor affiliated with Bank of America). The leasing company had filed a claim saying Quebecor World had not honored terms of the lease, which expired last August.

World Color Press, which was later purchased by QW, signed the lease in 1994, apparently as part of a lease-purchase arrangement. Capital-intensive businesses often use such deals to finance equipment purchases.

The settlement calls for Quebecor World to pay $144,000 cash for outstanding lease payments and for the leasing company to be recognized as having claims in the bankruptcy case of more than $1.3 million. That would cut into the compensation to be received by other creditors; the hearing will give those creditors a chance to object to the settlement.

Quebecor World will also have the option of purchasing the Cerutti press for $1. Because the press was designed to produce telephone books, a declining market, it may not be worth much more than $1.

There is no word on whether Quebecor World has worked out or overcome all other objections to its reorganization plan or whether it can get its financing extended. And there's no word on whether Quebecor World leaders are calling R.R. Donnelley and saying, "Now about that last offer . . ."

Smackdown: Printed Editions vs. Digital Editions

Finally, a paper company is fighting back against the ridiculous notion that electronic books are greener than printed books.

International Paper recently released “Are Pixels Greener Than Paper”, which compares the environmental profile of ink-on-paper publications (dead tree editions) to digital publications (what I call “dead dinosaur editions” because of the fossil fuels and petrochemicals they consume). It has good points backed by in-depth research, but we need to translate and reformat the PR-speak into something more understandable to the general public.

With The Wall Street Journal's bogus claim yesterday that "e-textbooks are environmentally friendly", it's more important than ever to take a realistic look at e-books. Therefore, Dead Tree Edition offers this color-coded "tale of the tape" (as they say in boxing circles) comparing Dead Dinosaur Editions with Dead Tree Editions on key attributes, with quotations from the IP brochure:

• Raw Materials:Paper is a renewable resource. The North American “paper and forest products industry replenishes more than it takes and ensures the sustainability of our forests by planting 1.7 million trees every single day, more than three times what is harvested.” But as for dead dinosaur editions, “making a computer typically requires the mining and refining of dozens of minerals and metals, including gold, silver and palladium, as well as the extensive use of plastics and hydrocarbon solvents.” No one is planting dead dinosaurs into the ground to make more oil for the petrochemicals that digital devices consume.
  
  
• Energy/Carbon Footprint: “Sixty percent of the energy used to make paper in the U.S. comes from carbon-neutral renewable resources and is produced on site at mills.” “The electronics industry uses more than 90 percent fossil fuels purchased off the grid."
  
  
• Recycling:“In the U.S., nearly 60 percent of all paper is recycled, recovered and reused to make new paper products.” Electronic devices have a recycling rate of only 18%.
  
  
• User Editing: The Journal article says most students prefer dead-tree textbooks to dead-dinosaur textbooks, partly because they can't highlight important passages or write notes in e-textbooks.
  
  
• Reliability: Digital editions are often read on machines running Windows or Vista. 'Nuf said. Dead-tree editions never crash, get infected with viruses, receive spam, or serve pop-up ads.
  
  
• Durability: Ever dropped a laptop? Not pretty.
  
  
• Lifespan: I read a 150-year-old book the other day and have 75-year-old copies of National Geographic, but my 15-year-old WordPerfect for DOS files are either unreadable or FUBAR. How many of today’s laptops, e-book readers, and iPhones will still be in use five years from now?
  
  
• Waste: “The lifespan of a computer is short, and electronics have become the fastest growing waste stream in the world.” Much of that waste is toxic. Paper is reusable, recyclable, and biodegradable.
  
  
• Personal Hygiene: Speaking of waste, which would you rather read while sitting on the toilet, a magazine or a Kindle? And remember that, before they had toilet paper, our ancestors had the Sears, Roebuck catalog. Ever tried to wipe your bottom with a Blackberry?
  

Quebecor World Update: Maybe Tomorrow

News Flash: Quebecor World has apparently worked out a deal with some of its lenders and goes back to U.S. bankruptcy court at 3:30 EDT tomorrow (July 16) for a hearing on an amended reorganization plan.

Here's a link to the agenda and QW's motion on its amended plan. It's not clear whether all of the objections to Quebecor World's reorganization plan can be resolved at tomorrow's hearing.

In turning down one of three takeover offers from rival printer R.R. Donnelley last month, Quebecor World said it could have difficulty continuing to operate if it doesn't exit bankruptcy protection by July 21. That's when its debtor-in-possession financing runs out.

Will Postal Rates Decrease Next Year?

The many people who spent years crafting and redrafting the postal-reform law and its accompanying regulations overlooked a key issue -- deflation.

The 2006 law caps annual rate increases for most classes of postage at the rate of inflation, as measured by changes in the Consumer Price Index. The Postal Regulatory Commission developed regulations interpreting how to apply the CPI calculations in various circumstances. Except one: When there has been deflation rather than inflation.

"The Commission's rules are designed for price adjustment proposals during periods of inflation," the commissioners noted in a decision earlier this month.

It's almost certain, however, that the average monthly CPI for this year will be lower than the 2008 average. The CPI would have to increase at an annualized rate of more than 4.7% for the rest of the year for the U.S. Postal Service to have a rate cap above zero next year. The number for June was higher than that because of rising energy prices. But with that mini-bubble bursting and the recession continuing, changes in CPI are likely to be minimal or even negative the rest of the year.

Consider some of the questions that will arise if, for example, an inflation rate of about 2% for the rest of the year results in the average CPI for 2009 being 0.5% lower than in 2008:

• Would USPS have to decrease prices next May for First Class, Standard, Periodicals and other "market-dominant" classes by at least 0.5% (less any unused rate authority from this year)? The Postal Service says no because the law just limits the size of postage increases without referring to mandatory decreases.
• Could the Postal Service increase some rates next May and offset those with decreases in other rates of the same class? The answer is probably yes. The more difficult question is whether average rates in each class would have to be 0.5% lower or merely the same as today.
• If the CPI rises by 4% in 2010, would May 2011 rates be capped at 4% or at 3.5%? Logic says if there is no rate change next year that the 2011 price cap would be the difference between 2008 and 2010 CPI, about 3.5% in this scenario. But the PRC's price-cap methodology calls for comparing one year's CPI with the immediately preceding year's CPI (that is, 2010 to 2009), which would yield a price cap of about 4%.
  

So how should mailers budget for postage rates next year? Definitely do not count on a decrease: Nothing in the law or regulations would require that. My guess is that the Postal Service will be allowed to adjust rates as long as the average for each class does not increase.

For Periodicals, I would assume that relatively light publications will pay slightly higher postage rates next May, just as their increases were a couple of percentage points above the theoretical Periodicals price cap of 3.97% this year. More specifically, I would expect the basic carrier-route rate to increase while the pound rates decrease, as happened this year.

USPS justified the carrier-route increase by pointing to the decreasing value of carrier-route bundles from the Flats Sequencing System roll-out. Cynics cite another FSS-related reason: Postal officials have promised that efficiently packaged, dropshipped FSS copies will cost less when FSS-specific rates are introduced (reportedly in 2011) than dropshipped carrier-route copies do. Moving the goalposts – that is, increasing carrier-route piece rates – will make it easier for the Postal Service to reach that goal.

Twitter vs. RSS: So Much for Superior Technology

I’m coming to the conclusion that RSS is the Betamax of the Web and Twitter the VHS.

Some of you old-timers will remember the infancy of VCRs, when Betamax and VHS were the two competing and incompatible formats. Many techies concluded that Betamax was the superior technology, but within a few years VHS's superior marketing made it the format of choice.

Although I still don’t like Twitter (as I made clear in my 140-character poem about why so many Twitterers quit), I have signed up for it because it seems to be the way many people keep up with favorite Web sites.

Don’t expect me to tweet every time I go to the bathroom or watch a TV show. (Note: Because D. Eadward Tree is a mythical person, he does not engage in such mundane and disgusting activities.)

I plan to use it mainly to notify followers of newly posted articles – and occasionally to seek information and advice.
But, frankly, I don’t see any reason to use Twitter rather than RSS to keep track of favorite Web sites.

It’s much easier to glance at a program like Google Reader to get a summary of updates at favorite Web sites than to scroll through a bunch of tweets and then click on the ones that you hope are relevant.Like VHS before it, however, Twitter is capturing the public’s attention despite the existence of a superior technology.

Twitter has the cute little bird logo that goes with its name, while RSS's logo is -- what the hell is that? Twitter is all over the mainstream media, recently making the cover of Time magazine and no doubt the magazine’s leading candidate for Bird of the Year. But the glitterati have decided that RSS is not worth discussing.

That’s such a shame, even for an old print dinosaur like me who didn’t know his RSS from a hole in the ground until a few months ago. Give it a try: Go to Google.com/Reader and click "Create an account" on the right to open a free account.

After you sign in, click the "Add a subscription" button on the upper left, then enter this: http://deadtreeedition.blogspot.com/feeds/posts/default. Now whenever you open Google Reader, you’ll get capsule views of Dead Tree Edition’s latest posts. But if you’d rather follow me via Twitter, here you go: http://twitter.com/DeadTreeEdition.

Newspaper Production Enters Colorful, Outsourced Era

Good model. Bad timing.

A new approach to producing newspapers in the United States had a colorful beginning this week when the production of all copies of the San Francisco Chronicle were outsourced to a new plant built and run by Transcontinental Inc.

The Chronicle’s own 50-year-old flexographic presses were idled, along with about 200 unionized employees, after production of Sunday’s issue. Filling the void is a $200-million-plus Transcontinental plant in Fremont with three heatset/coldset offset presses, new inserting equipment -- and non-union employees.

As Dead Tree Edition has previously explained, the operation breaks new ground in the U.S. on at least three fronts: 1) The presses can run in either coldset or heatset modes, making them able to print on anything from newsprint to coated paper. Not only do they add color and boost quality for the Chronicle, they are also suited to doing general commercial printing. 2) The outsourcing of a major newspaper’s production to a commercial printer. U.S. dailies typically control their means of production. 3) The plant was designed with the ability to produce multiple newspapers, though no other clients have been announced.

The Hearst-owned Chronicle says the new operation will yield substantial savings without Hearst having to invest in new equipment. It’s not clear to what extent the savings come from the inherently greater efficiency of the new presses, narrowing the paper from six columns to five, or the switch to non-union labor. (One newspaper industry veteran tells me that non-union newspapers tend to pay their press operators as well as similar-sized union papers. But their compensation costs for the pressroom are lower because they don't have contract-imposed staffing requirements and assign more of the less skilled work to lower-paid employees.)

Don’t expect Transcontinental to be replicating its innovative San Francisco model in other metro areas any time soon. With the recession squeezing both its printing and publishing profits, the company is indicating it is tapped out for now as far as major capital investments go. And counting on the long-term viability and credit worthiness of major metro newspapers may be too much of a gamble these days.

Here's a roundup of interesting items that have appeared this week about the Transcontinental-Chronicle deal:

• The Chronicle's cool two-minute video of the plant in action, set to "The Sorcerer's Apprentice". (An ironic choice of music? You decide.)
• The Chronicle's article on Monday about the newspaper's new "wrinkle-free" era. Be sure to check out the reader comments, not all of which are glowing. One commenter says the Chronicle is now "San Francisco's trophy wife" because its role is "to hang around, look good, and not say anything." (In defense of the Chronicle, its investigative reporting -- remember when newspapers did that? -- led to the resignation this week of a college president.)
  
• SF Weekly's knockdown of the Chronicle's coverage of the new production arrangement as "an in-house infomercial". The snarky piece also hints of delivery problems on Monday.
  
• Graphic Arts Online has a rundown of the equipment in the new plant.
• An excellent article about the last day at the old Chronicle printing plant and its 200-plus employees, none of whom has been hired by Transcontinental.
• Transcontinental Monday news release, which includes some details about the new plant's energy efficiency.
  

Does Federal Law Limit Post Office Consolidation?

The laws of economics say the U.S. Postal Service needs to reduce the number of post offices. But the laws of the United States may say otherwise.

As USPS embarks on a study to determine which of approximately 3,000 large post offices can be eliminated, it is seeking the Postal Regulatory Commission's blessing on the legality of its efforts.

The Postal Service is concerned about running afoul of the law requiring it to “maintain[s] postal facilities of such character and in such locations, that postal patrons throughout the Nation will, consistent with reasonable economies of postal operations, have ready access to essential postal services.” It asked the PRC late Thursday to rule that consolidation of some of the large "stations and branches" (which are mostly in urban and suburban locations) does not violate that clause.

Mail volume is declining, and more than 30% of USPS's retail revenue comes from sources other than transactions at retail post offices, according to the filing. "Yet the vast majority of existing Post Offices, stations and branches were established before the advent of the Internet and other convenient alternative access channels that have proven so popular,"the filing states.

"In many cases, the justification for the establishment of a station or branch at a particular location 20 or 40 or more years ago no longer exists," the USPS request says. "Postal retail stations and branches are not intended to operate as monuments to a bygone era of postal customer interaction."

The study will examine "the feasibility of moving retail units and carrier operations into smaller facilities, as well as the consolidation of both retail and delivery from one location into other nearby retail and delivery units," says Alice M. Vangorder, who heads Customer Service Operations for USPS, in testimony submitted along with the Postal Service's motion. "It is
impossible to predict how many stations and branches ultimately will be subjected to discontinuance."

Though stamp purchases are still the most common type of retail transaction at post offices, she notes that people can buy stamps at nearly 50,000 supermarkets and other private businesses.

The study is just the first step in the Postal Service's plan to conduct "an in-depth examination and reconfiguration of its [entire] retail network," which consists of more than 36,000 locations.

As usual, these efforts to follow the Congressional mandate that USPS break even financially are likely to run into "Not in my district" complaints of various members of Congress.

The Rush to Make Uncoated Paper on Coated Machines

Facing overcapacity in their usual markets, the two big North American manufacturers of coated paper have launched uncoated products made on machines designed to produce coated papers.

The latest move is Verso’s announcement last week that its big coated-groundwood machine (PM3) at the Sartell, MN mill will be used to make the new Clarity line of supercalendered papers. Verso plans to have more than half the machine's capacity dedicated to SC papers, meaning it is removing more than 100,000 annual tons of capacity from the oversupplied LWC (lightweight coated) market.

The continent’s other big coated supplier, NewPage, has recently launched two lines of uncoated products that are being made on machines having coaters. Ideal Offset is a new line of freesheet papers that can be used in everything from direct mail to business reply cards, while Octane is NewPage’s entry into the market for sized groundwood papers that provide a low-cost alternative to uncoated freesheet.

The new products enable the two companies to keep their low-cost machines running without oversupplying the coated markets and thereby depressing prices even further. The U. S. government’s black-liquor credit also gives them a generous, though probably temporary, incentive to keep pumping out products that contain kraft pulp.

Depressed demand and overcapacity have kept operating rates at about 70% for North American coated mills this year. NewPage has announced temporary down time to deal with depressed demand but says it has no more high-cost machines to shut down permanently as a response to overcapacity.

Making uncoated papers on coated machines during depressed markets is nothing new, but it has usually been done quietly on a spot basis. By going public, NewPage and Verso are demonstrating their intent to continue the products even when conditions change in the coated market.

Verso indicated its long-term commitment to Clarity when it told customers that using PM3 to produce SC required ingenuity and “strategic investments.” Making LWC and SC, especially SCA or SCA+, on the same machine is challenging because of the different pulp mixtures: With LWC, the clay or other coating materials are applied after the base sheet is made, while with SC papers the clay is mixed into the pulp furnish at the “wet end” of the paper machine.

The move makes Verso a new player in the market for high-end SCA/SCA+ papers, the kind that offer similar properties to LWC but at a lower price. And with PM3 being roughly double the width of Verso’s existing SC machines at Sartell, Verso will now be in a better position to make paper for giant roto presses (and perhaps eventually to shut one or both of those smaller machines).

Quebecor World Reorganization Still Faces Hurdles

Quebecor World may emerge from bankruptcy reorganization in 10 days if it can work out details with creditors, lenders and the Internal Revenue Service.

The big printing company's reorganization plan was approved by a U.S. bankruptcy court Thursday, two days after getting approval from a Canadian court. But there are some strings attached.

The U.S. court order says Quebecor World needs a decision from the IRS regarding the proposed settlement of $22.5 million in back taxes. And both courts say the company needs to work out with its note holders and its creditors committee "an acceptable compromise" on the wording of the articles of reorganization and a financial document.

If the conditions have not been met, both courts will hold a hearing on July 13 to determine next steps. If the conditions have been met, the company will emerge from bankruptcy protection that day -- reportedly with the new name of "Novink".

"This is a major milestone in successfully restructuring our Company to benefit all stakeholders,” Jacques Mallette, President and CEO, said yesterday about the courts' decisions. “We look forward to exiting creditor protection in mid-July and moving forward with the implementation of our business plan as a strong competitor in the industry.”

Current stockholders in the company would receive no compensation. Quebecor World's lenders and creditors are to become its owners, with the company's stock being traded on the Toronto Stock Exchange.