Thursday, May 20, 2010

NewPage Reportedly Has Deal For Kruger's Idled Machines

NewPage and Kruger have reached a deal ensuring that Kruger doesn't restart the soon-to-be-idled coated-paper operation at its Trois-Rivieres, Quebec mill, several sources say.

The arrangement would reportedly be similar to the deal NewPage did in March, when it agreed to buy Domtar's coated-groundwood product lines and trademarks after Domtar closed its only coated mill, in Columbus, MS. (See Is Domtar's Exit a Game Changer for Coated Paper?)

In this case, Kruger will continue making lightweight coated groundwood on its world-class machine at the nearby Wayagamack mill. But the sources say its business above 40# is being turned over to NewPage.

One irony of the deals is that NewPage has said it wants to focus its coated-groundwood business more on lightweight papers; both Columbus and Trois-Rivieres focused on medium and heavy weights. But as North America's #1 producer of coated paper, what NewPage gets from the Domtar and Kruger deals is capacity reduction -- that is, less competition -- in the oversupplied coated-paper market.

Kruger announced yesterday that it will lay off 320 employees at Trois-Rivieres in June when it shuts down two paper machines and a coater. It said it would stop making both coated and supercalendered paper at the mill, but it's not clear whether the deal with NewPage includes supercal.

Market observers have said that the age and small size of the Trois-Rivieres machines probably made it a high-cost producer of coated groundwood and supercal. The recent strength of the Canadian dollar versus the U.S. dollar also hurt because most of the mill's output is sold in the U.S. With pulp prices soaring while paper prices are gradually coming out of a trough, it's probably more profitable for Kruger to sell its pulp to others rather than to make paper with it.

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