Wednesday, February 22, 2017

Old Paper Mills: Monuments to a Strong Dollar

1909 postcard: 21 million logs at Millinocket, ME paper mill (from the author's collection)
1906 postcard: ME, Maine paper mill and hydroelectric dam (from the author's collection)
"Strong dollar."

Sounds good, doesn't it? The news that our currency continues to strengthen in comparison with those of almost every other country is like winning the Olympics, right? "U-S-A! U-S-A!"

Once-bustling paper-mill towns in Maine that are now turning to ghost towns tell another story. In a state where making paper was an iconic livelihood on par with Down East's famed lobstermen, half of the paper mills have closed in the past two years. Already this year, the site of the former Millinocket mega-mill (pictured above, nine years after it opened as the world's largest paper mill) was sold to a non-profit for $1, permission to demolish another mill was requested, and the Maine Pulp and Paper Association disbanded.

Donald Trump's tirades against foreign trade resonated in the paper-making regions of Maine, just as they did in the parts of  Pennsylvania, Ohio, Michigan, and Wisconsin that once thrived on steel, autos, coal and paper. Solid-blue counties that previously went for Obama voted instead for Trump, flipping the states' electoral votes to the GOP column.

But as even President Trump recently seemed to acknowledge, the "strong" dollar may be the real culprit behind the loss of American manufacturing jobs. Especially in the paper industry, and most especially in Maine.

The Madison mill -- pictured above 1906, the year it opened -- is a poster child for the inability of protectionist policies to overcome currency issues. Under questionable circumstances, the U.S. Department of Commerce in July 2015 imposed import duties on all four of its Canadian competitors in an obvious attempt to prop up the Madison mill.

That wasn't enough to save Madison. It couldn't overcome a 35%-plus "strengthening" of the U.S. dollar against the Canadian currency in just four years.

With most of their expenses in cheap Canadian dollars but their revenue in pricey American dollars, Canadian mills could still make a profit selling into the U.S. despite penalties of as much as 19%. Similarly, UPM, the world's largest and most profitable paper company, found it made more sense to supply supercalendered paper to the U.S. from its weak-euro European mills than to continue operating Madison.

The Madison mill made its final roll of paper in May 2016. It was sold to an industrial liquidator late last year.

The Digital Revolution and the strong dollar have been bad news for all U.S. makers of publication papers. Maine has the additional bad fortune of mills that were focused on lightweight papers like newsprint, directory, supercalendered, and lightweight coated that have borne the brunt of the shift to digital media. Plus, its out-of-the-way location gives it at best minimal freight advantages versus Canadian mills when shipping to the Midwest or versus European mills when shipping to must of the U.S. East Coast.

Protectionist policies are no match for declining demand and a rising dollar.

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Anonymous said...

Paper mills have been closing long before Obama came into focus. Granted his polices overall hurt manufacturing in America but it certainly didn't begin with him. And to mention Trumps policies as hurting paper mills is absurd. He's literally been in office less than two months...give the guy a break.
Many of the past mills and even currently are hurting or have been hurt by poor management and overall waste. If many of the mills had the forethought to work more collaboratively and efficiently they'd still be here. Too big, too fast with a focus on big money. It's my opinion that's what led to the demise of many mills.

D. Eadward Tree said...

I'm not blaming Obama or Trump. Support for a strong dollar seems to be strong among politicians of all stripes. But what's really made the dollar expensive lately seems to have little to do with policy and more to do with the relative strength and stability of the U.S. economy in comparison with the rest of the world. The dollar's status as a safe-haven currency apparently drives up its value.

Anonymous said...

The blame can be laid at the foot of the Federal Reserve. It truly is the creature from Jekyll Island and its existence and the fiat money that has been spewed forth from the past century has enriched a select few while leaving carnage and destruction in its wake.
Ive seen it - up close and personal- having spent twenty years of my life in the timber industry of northern New England.

Anonymous said...

The demise of the Maine paper industry began in the 1970s when the conglomerates started buying up the locally owned mills. For generations these independent pulp & paper operations had maintained their equipment and re-invested profits. Once IP, Boise, James-River, Scott, etc. bought these Maine companies, they sucked all the money out of the mills and deployed it in their southern and northwest operations. That was the beginning of the end.

Anonymous said...

IMHO, the demise of the Maine paper industry is rooted in the collapse of the printing & writing, newsprint or graphics paper industry caused by the introduction of digital news and communications.

When there is no market for your product, no price will be low enough and the smaller Maine mills were not cost competitive.

Balthasar Miller said...

In my opinion the biggest mistake in present politics is to keep transport costs at low! The low cost transport abilities do support to manufacture in low cost areas.
If we would have a fair tax on transport that would level out the wage differences between the various comercial centers, then we would support fair trade!
Import duties make that essential goods can not be offered on certain markets, therefore making imporduties to be a barrier for trade development, but trade must be fair and this can be regulated by making the transport people to offer ecological transport abilities.

Ron said...

There is no doubt the lightweight papers are a problem. 30 years ago the Scandnavian mills started taking a lot of the market, then the demand went down as well. But a lot of the problem has been management. Arrogant stodgy know it all management. I spent years in the distribution business, dealt with most US mills and many Asian and European. Basically uncooperative on a good day. As a paper merchant you need the mills and their stubborness more than you needed customers aka printers. There was price fixing out the wazzoo. Then the Asians figured out how to make good paper and ship it to the USA and be cheaper than the American mills. Of course the Chinese and Korean governments subsidized their mills to keep prices down. The were convicted finally of dumping. There were so many problems in the paper biz it is a wonder it did not collapse earlier. Look at the Newpage / Verso mismanaged merge / bankruptcy for a study in what not to do.

I really liked the paper biz -- but not the overall management of mills etc. Then of course mills bought merchants to control that as well. The paper biz was also full of age discrimination, sex discrimination and everything else that the GOOD OLE boys could get away with.

Don't miss it much today.