Friday, July 3, 2009

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).

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