Update: The Justice Department announced on Dec. 31 that the Catalyst deal will satisfy its antitrust concerns about the Verso-NewPage deal. Both the Catalyst deal and the Verso-NewPage deal were completed on Jan. 7, 2015.
Today's announcement that Catalyst Paper will buy two NewPage coated-paper mills apparently means that the merger of NewPage and Verso Paper will move forward.
Catalyst revealed that it will purchase NewPage's Rumford, Maine and Biron, Wisconsin mills for $74 million -- more than quintupling the Canadian company's capacity for making coated paper. One condition of the sale is that Verso-NewPage deal be consummated.
That merger has been delayed by federal antitrust officials, who were apparently concerned that, by owning half of North America's capacity to make coated paper, a combined Verso-NewPage would have too much market power and be able to drive up prices. NewPage's sale of the two mills, coupled with Verso's decision to close its Bucksport, Maine mill, were presumably a condition of gaining the U.S. Justice Department's approval for the merger.
Catalyst would only pay about $85 per ton of capacity to make paper that typically sells for at least $850 per ton. That looks like a fire-sale price, except that the continent's demand for coated paper is half of what it was barely a decade ago. And except that we've seen this movie before, and the ending wasn't pretty.
Justice allowed the 2007 merger of newsprint giants Abitibi and Bowater to go forward only after Abitibi unloaded one of its gems, a 100%-recycled mill in Snowflake, Arizona, to Catalyst for a bargain price. But a few years later, Snowflake hit a perfect storm -- Chinese buyers driving up the price of West Coast recycled paper, black liquor tax credits subsidizing competitors using virgin pulp, and the collapse of the U.S. newspaper industry -- and was shut down.
Both AbitibiBowater (now called Resolute Forest Products) and Catalyst ended up going through bankruptcy reorganization and emerged as smaller but healthier companies.
Catalyst makes mostly newsprint and uncoated papers in western Canada, but does have a single machine making coated groundwood paper.With the purchase announced today, Catalyst would pick up four machines that make coated freesheet as well as coated groundwood paper, plus some market-pulp capacity.
Related articles:
Showing posts with label AbitibiBowater. Show all posts
Showing posts with label AbitibiBowater. Show all posts
Thursday, October 30, 2014
Sunday, January 26, 2014
Verso-NewPage Deal Will Face Antitrust Hurdles, Analyst Predicts
The U.S. Department of Justice is likely to delay or even block the proposed merger of NewPage and Verso Paper, according to a news service that focuses on bankruptcy issues.
“Because the deal may increase the likelihood of both post-merger unilateral effects and coordinated capacity reduction and price increases, DOJ is almost certain to issue a second request” for information, The Capitol Forum wrote in a Jan. 24 analysis. “At a minimum, this will delay closing for several months, and could lead to a DOJ move to block the deal outright.”
What will catch DOJ’s eye is that the merged company would control 58% of North American capacity to make coated paper, said the report, which is only available to The Capitol Forum’s subscribers but was shown to Dead Tree Edition.
The report predicted that Justice will examine whether, in the words of its Merger Guidelines, the combined company would “find it profitable unilaterally to suppress output and elevate the market price” of coated paper.
It cited as precedent Justice’s complaint in the 2007 merger of Abitibi and Bowater, which at the time owned 41% of North America’s newsprint capacity. The merger was allowed to go forward only after Abitibi sold a low-cost mill.
The department said that neither Abitibi nor Bowater “acting alone would be of sufficient size to profitably increase the price of newsprint by reducing its own output through strategically closing, idling, or converting its capacity…The proposed transaction would combine Defendants' large share of newsprint capacity, thereby expanding the quantity of newsprint sales over which the merged firm would benefit from a price increase. This would provide the merged firm with an incentive to close capacity sooner than it otherwise would to raise prices and profit from the higher margins on its remaining capacity.” Industry observers have made similar comments about the proposed Verso-NewPage combination.
A significant difference in the Verso-NewPage case is that offshore imports could limit the merged company’s pricing moves. Only 2% of newsprint in North America came from offshore when AbitibiBowater was formed, versus about 16% for coated paper in recent years.
Verso and NewPage may argue that supercalendered paper is part of the same market as coated paper, which would shrink the companies' market share somewhat because Verso no longer makes SC paper.
A significant factor arguing against a Verso-NewPage merger, according to the report, is that the coated-paper industry is prone to cooperation among competitors because it is highly concentrated, has high barriers to entry, and tends to have relatively transparent pricing. Justice certainly is aware of that because it brought charges in 2007 against European giants UPM and StoraEnso for discussing how to stabilize U.S. coated paper prices.
Related articles:
“Because the deal may increase the likelihood of both post-merger unilateral effects and coordinated capacity reduction and price increases, DOJ is almost certain to issue a second request” for information, The Capitol Forum wrote in a Jan. 24 analysis. “At a minimum, this will delay closing for several months, and could lead to a DOJ move to block the deal outright.”
What will catch DOJ’s eye is that the merged company would control 58% of North American capacity to make coated paper, said the report, which is only available to The Capitol Forum’s subscribers but was shown to Dead Tree Edition.
The report predicted that Justice will examine whether, in the words of its Merger Guidelines, the combined company would “find it profitable unilaterally to suppress output and elevate the market price” of coated paper.
It cited as precedent Justice’s complaint in the 2007 merger of Abitibi and Bowater, which at the time owned 41% of North America’s newsprint capacity. The merger was allowed to go forward only after Abitibi sold a low-cost mill.
The department said that neither Abitibi nor Bowater “acting alone would be of sufficient size to profitably increase the price of newsprint by reducing its own output through strategically closing, idling, or converting its capacity…The proposed transaction would combine Defendants' large share of newsprint capacity, thereby expanding the quantity of newsprint sales over which the merged firm would benefit from a price increase. This would provide the merged firm with an incentive to close capacity sooner than it otherwise would to raise prices and profit from the higher margins on its remaining capacity.” Industry observers have made similar comments about the proposed Verso-NewPage combination.
A significant difference in the Verso-NewPage case is that offshore imports could limit the merged company’s pricing moves. Only 2% of newsprint in North America came from offshore when AbitibiBowater was formed, versus about 16% for coated paper in recent years.
Verso and NewPage may argue that supercalendered paper is part of the same market as coated paper, which would shrink the companies' market share somewhat because Verso no longer makes SC paper.
A significant factor arguing against a Verso-NewPage merger, according to the report, is that the coated-paper industry is prone to cooperation among competitors because it is highly concentrated, has high barriers to entry, and tends to have relatively transparent pricing. Justice certainly is aware of that because it brought charges in 2007 against European giants UPM and StoraEnso for discussing how to stabilize U.S. coated paper prices.
Related articles:
Monday, January 13, 2014
Untangling the Verso-NewPage Deal
Somewhere there must be a person who fully understands all aspects of the proposed combination of NewPage and Verso Paper, North America’s two largest makers of magazine-quality paper. But mostly there is confusion and debate and even misinformation about the marriage and what it would mean for the paper industry and its employees, for magazine publishers, and for catalogers.
Such a pre-nup! What Verso and NewPage have worked out is far more complex than described in the companies’ announcements or even in stock analysts’ reports. Included are some odd provisions that have gone mostly unnoticed.
Here is Dead Tree Edition’s attempt to explain the structure and implications of the impending union, which was announced a week ago after a stormy, three-year courtship:
Why is the proposed deal important?: The two companies control roughly half of the North American market for glossy papers (coated freesheet, coated groundwood, and high-quality supercalendered papers). In theory, a company with that much market share has the power to drive up prices, or at least to keep them stable by preventing gluts in the market. NewVerso (my name for the new company) could also throw its weight around among suppliers and merchants, creating both winners and losers.
Will the marriage be consummated? There seem to be two main hurdles:
1) Anti-trust approval: The Justice Department, goaded perhaps by major paper buyers, may block the deal on grounds that NewVerso’s huge market share would be monopolistic. A more likely scenario is that the company would be forced to sell (or close) a mill, as Abitibi and Bowater were required to do when the two newsprint giants merged.
2) Verso noteholders: For the deal to be consummated, holders of $538 million in Verso debt must agree to exchange their notes for ones worth only $267 million. “This implies debt forgiveness of $271.1 million,” wrote Paulo Santos for Seeking Alpha. “Debt forgiveness is usually attained through a pre-packaged bankruptcy or regular bankruptcy.” Bondholders may chafe at taking such a huge haircut without the stockholders taking a hit. But many had paid less than 50 cents on the dollar for Verso’s distressed debt, and they may decide the NewVerso deal is better than the most likely alternative, a Verso bankruptcy.
Who will the winners be if the deal goes through? Lawyers and investment bankers, of course. Perhaps Verso stockholders, who have seen the price spike six-fold in just a week. And probably competitors like Resolute, UPM, and SAPPI, who would benefit from NewVerso using market discipline to keep prices high.
And the losers? Customers. Either Memphis (Verso’s home) or Dayton (NewPage’s headquarters), at least one of which will lose a corporate headquarters. Probably some supplier and paper merchants. The big losers would be employees and towns of the mill or mills that will be closed.
But didn’t Verso promise it wouldn’t close any mills? No, it said it had no plans to close any mills. Translation: “Nothing in the legal documents requires us to close any specific mills.” Analysts seem to be unanimous in their view that the merger would lead to capacity reductions.
In fact, one of the deal documents even provides incentives for NewPage or Verso to reduce their production capacity by more than 10%. (See the discussion of “triggering events” in the Services Agreement Term Sheet. I’m not aware of any analyst or journalist who has addressed the meaning or significance of the Shared Services Agreement, but I find it intriguing – and confusing.)
That doesn’t sound like a straightforward purchase of NewPage by Verso. What gives? Technically speaking, a Verso subsidiary will merge with a NewPage entity. But each company has several subsidiaries that are involved in related transactions with the others’ subsidiaries, making the NewPage takeover anything but straightforward.
For example, the Shared Services Agreement indicates that Verso will be supplying administrative and marketing services either to NewPage before the takeover occurs or to a separate NewPage entity that will continue to exist after the takeover occurs. (Update: As explained in Odd Verso-NewPage Structure Eyed Warily by Wall Street, NewPage would continue as a separate operating company after the merger.) That agreement addresses how certain costs of the merger, such as severance payments, will be allocated between NewPage and Verso. It also calls for Verso to invoice NewPage each quarter for “realized synergies” resulting from the services that Verso provides to NewPage.
How did nearly bankrupt Verso, whose stock-market value was barely $30 million a week ago, pull off a deal that’s been valued at $1.4 billion? Short answer: OPM (Other People’s Money). Longer answer: Good question.
The Verso-NewPage deal is “sort of like two very weak companies holding each other up,” Vertical Research Partners analyst Chip Dillon told Reuters. “Essentially the deal is all debt, there is no real equity involved here.”
The $1.4 billion figure is based on NewVerso giving NewPage stockholders $250 million in cash and $650 in NewVerso first-lien notes, plus taking on $500 million in existing NewPage debt. NewPage stockholders would also end up with 20% to 25% ownership of the merged company.
But how did a financially troubled company like Verso find backers for such a deal? The deal would create value in two ways: 1) Debt reduction: The proposed debt exchange with Verso noteholders would eliminate $271 million of the company’s debt. 2) Synergies: Verso says the deal will yield at least $175 million in pre-tax cost savings during the first 18 months. Besides economies of scale in administration, marketing, and purchasing, having more machines means each can operate more efficiently by making a narrower range of products.
How did Verso go from being worth $35 million to $200 million in barely a day? That’s the subject of some debate in the markets. Until last week, a Verso shares was basically a cheap (as in 65 cents) lottery ticket, apparently destined to be worthless but potentially valuable if the company could avoid bankruptcy. When news of the NewPage deal broke, some traders figured Verso now had a future and jumped in with both feet. There are somewhat disputed reports that Verso short sellers were scrambling to cover their shorts, driving share prices up even further. And the proposed debt forgiveness was viewed by some as “free money” that added to Verso’s stock value.
Whatever the reason, share volume jumped more than 14,000% on Jan. 6 and nearly doubled again the next day.
Is Verso stock a good investment? It's still more like a lotto ticket than an investment. If the deal doesn’t go through, bankruptcy seems likely. And even if the marriage is consummated, NewVerso could end up like the old Verso – too saddled with debt to have much value when demand for its products is in long-term decline. Then again, if NewVerso emerges as even a moderately healthy company, the Verso stock could see huge gains.
Would NewVerso be a successful company? The precedents are mixed. The widely cited model is the North American uncoated freesheet market, where consolidation has yielded two giants that can keep prices stable in the face of declining demand by judiciously reducing their output. But there’s also the case of Abitibi and Bowater, the two largest makers of newsprint in North America when they combined in 2007. High debt and rapidly declining demand pushed them into bankruptcy reorganization only 18 months later.
Related articles:
Such a pre-nup! What Verso and NewPage have worked out is far more complex than described in the companies’ announcements or even in stock analysts’ reports. Included are some odd provisions that have gone mostly unnoticed.
Here is Dead Tree Edition’s attempt to explain the structure and implications of the impending union, which was announced a week ago after a stormy, three-year courtship:
Why is the proposed deal important?: The two companies control roughly half of the North American market for glossy papers (coated freesheet, coated groundwood, and high-quality supercalendered papers). In theory, a company with that much market share has the power to drive up prices, or at least to keep them stable by preventing gluts in the market. NewVerso (my name for the new company) could also throw its weight around among suppliers and merchants, creating both winners and losers.
Will the marriage be consummated? There seem to be two main hurdles:
1) Anti-trust approval: The Justice Department, goaded perhaps by major paper buyers, may block the deal on grounds that NewVerso’s huge market share would be monopolistic. A more likely scenario is that the company would be forced to sell (or close) a mill, as Abitibi and Bowater were required to do when the two newsprint giants merged.
2) Verso noteholders: For the deal to be consummated, holders of $538 million in Verso debt must agree to exchange their notes for ones worth only $267 million. “This implies debt forgiveness of $271.1 million,” wrote Paulo Santos for Seeking Alpha. “Debt forgiveness is usually attained through a pre-packaged bankruptcy or regular bankruptcy.” Bondholders may chafe at taking such a huge haircut without the stockholders taking a hit. But many had paid less than 50 cents on the dollar for Verso’s distressed debt, and they may decide the NewVerso deal is better than the most likely alternative, a Verso bankruptcy.
Who will the winners be if the deal goes through? Lawyers and investment bankers, of course. Perhaps Verso stockholders, who have seen the price spike six-fold in just a week. And probably competitors like Resolute, UPM, and SAPPI, who would benefit from NewVerso using market discipline to keep prices high.
And the losers? Customers. Either Memphis (Verso’s home) or Dayton (NewPage’s headquarters), at least one of which will lose a corporate headquarters. Probably some supplier and paper merchants. The big losers would be employees and towns of the mill or mills that will be closed.
But didn’t Verso promise it wouldn’t close any mills? No, it said it had no plans to close any mills. Translation: “Nothing in the legal documents requires us to close any specific mills.” Analysts seem to be unanimous in their view that the merger would lead to capacity reductions.
In fact, one of the deal documents even provides incentives for NewPage or Verso to reduce their production capacity by more than 10%. (See the discussion of “triggering events” in the Services Agreement Term Sheet. I’m not aware of any analyst or journalist who has addressed the meaning or significance of the Shared Services Agreement, but I find it intriguing – and confusing.)
That doesn’t sound like a straightforward purchase of NewPage by Verso. What gives? Technically speaking, a Verso subsidiary will merge with a NewPage entity. But each company has several subsidiaries that are involved in related transactions with the others’ subsidiaries, making the NewPage takeover anything but straightforward.
For example, the Shared Services Agreement indicates that Verso will be supplying administrative and marketing services either to NewPage before the takeover occurs or to a separate NewPage entity that will continue to exist after the takeover occurs. (Update: As explained in Odd Verso-NewPage Structure Eyed Warily by Wall Street, NewPage would continue as a separate operating company after the merger.) That agreement addresses how certain costs of the merger, such as severance payments, will be allocated between NewPage and Verso. It also calls for Verso to invoice NewPage each quarter for “realized synergies” resulting from the services that Verso provides to NewPage.
How did nearly bankrupt Verso, whose stock-market value was barely $30 million a week ago, pull off a deal that’s been valued at $1.4 billion? Short answer: OPM (Other People’s Money). Longer answer: Good question.
The Verso-NewPage deal is “sort of like two very weak companies holding each other up,” Vertical Research Partners analyst Chip Dillon told Reuters. “Essentially the deal is all debt, there is no real equity involved here.”
The $1.4 billion figure is based on NewVerso giving NewPage stockholders $250 million in cash and $650 in NewVerso first-lien notes, plus taking on $500 million in existing NewPage debt. NewPage stockholders would also end up with 20% to 25% ownership of the merged company.
But how did a financially troubled company like Verso find backers for such a deal? The deal would create value in two ways: 1) Debt reduction: The proposed debt exchange with Verso noteholders would eliminate $271 million of the company’s debt. 2) Synergies: Verso says the deal will yield at least $175 million in pre-tax cost savings during the first 18 months. Besides economies of scale in administration, marketing, and purchasing, having more machines means each can operate more efficiently by making a narrower range of products.
How did Verso go from being worth $35 million to $200 million in barely a day? That’s the subject of some debate in the markets. Until last week, a Verso shares was basically a cheap (as in 65 cents) lottery ticket, apparently destined to be worthless but potentially valuable if the company could avoid bankruptcy. When news of the NewPage deal broke, some traders figured Verso now had a future and jumped in with both feet. There are somewhat disputed reports that Verso short sellers were scrambling to cover their shorts, driving share prices up even further. And the proposed debt forgiveness was viewed by some as “free money” that added to Verso’s stock value.
Whatever the reason, share volume jumped more than 14,000% on Jan. 6 and nearly doubled again the next day.
Is Verso stock a good investment? It's still more like a lotto ticket than an investment. If the deal doesn’t go through, bankruptcy seems likely. And even if the marriage is consummated, NewVerso could end up like the old Verso – too saddled with debt to have much value when demand for its products is in long-term decline. Then again, if NewVerso emerges as even a moderately healthy company, the Verso stock could see huge gains.
Would NewVerso be a successful company? The precedents are mixed. The widely cited model is the North American uncoated freesheet market, where consolidation has yielded two giants that can keep prices stable in the face of declining demand by judiciously reducing their output. But there’s also the case of Abitibi and Bowater, the two largest makers of newsprint in North America when they combined in 2007. High debt and rapidly declining demand pushed them into bankruptcy reorganization only 18 months later.
Related articles:
- NewPage-Verso Merger Unlikely, 2 Experts Say
- Verso Changes Course -- Why?
- Are NewPage and Verso Headed to the Altar?
- How About a NewPage-Quad/Graphics Merger?
- Did Verso Come To Purchase NewPage Or To Bury It?
- NewPage, Verso Owners Reportedly Discussing a Deal
Wednesday, September 12, 2012
Verso Changes Course -- Why?
Only three weeks after Verso Paper’s CEO said acquiring NewPage was the key to its future, Verso announced it no longer wants to buy its rival. Why the sudden change of heart?
In a mid-August interview with The (Memphis) Commercial Appeal, Verso CEO David J. Paterson said that the company’s key strategy is acquiring ailing companies “to get the cost reductions we can't get on our own.” NewPage, which is in Chapter 11 bankruptcy reorganization, is Verso’s only publicly announced target.
But last week Paterson issued a statement saying, “After careful analysis, we believe it is in the best interests of our company and its stakeholders to focus on the many other opportunities for Verso, including internal growth projects and other potential strategic alternatives.”
Verso's new tack is something of a mystery. Chip Dillon, a long-time forestry industry analyst, announced yesterday that his Vertical Research Partners is dropping coverage of Verso because the company’s future is so unclear. He sees “the restructuring of Verso’s debt as inevitable” but is not sure how or when that will happen.
Among the possible reasons that Verso is no longer courting (or stalking) NewPage:
In a mid-August interview with The (Memphis) Commercial Appeal, Verso CEO David J. Paterson said that the company’s key strategy is acquiring ailing companies “to get the cost reductions we can't get on our own.” NewPage, which is in Chapter 11 bankruptcy reorganization, is Verso’s only publicly announced target.
But last week Paterson issued a statement saying, “After careful analysis, we believe it is in the best interests of our company and its stakeholders to focus on the many other opportunities for Verso, including internal growth projects and other potential strategic alternatives.”
Verso's new tack is something of a mystery. Chip Dillon, a long-time forestry industry analyst, announced yesterday that his Vertical Research Partners is dropping coverage of Verso because the company’s future is so unclear. He sees “the restructuring of Verso’s debt as inevitable” but is not sure how or when that will happen.
Among the possible reasons that Verso is no longer courting (or stalking) NewPage:
- Hard to get: Verso’s latest move may be a negotiating ploy to wrest a better deal out of NewPage.
Tuesday, October 11, 2011
Abitibi's New Name: A Portent of Things To Come?
After considering hundreds of possible monikers, newsprint giant AbitibiBowater has chosen the name of a ship that was trapped in the Canadian Arctic, abandoned, rescued by Americans, and broken up by the British.
Is that a prediction of things to come or just a failure to know history?
AbitibiBowater (AKA AbitibiUnderwater) announced today that it will become Resolute Forest Products on November 7 as it tries to leave behind its debt-burdened past and find a name that customers can pronounce.
"Resolute" means being determined or having a single-minded resolve. The word most famously appears in the name of the HMS Resolute, a British exploration ship that was abandoned in 1854 after being trapped in ice. American whalers freed her from the ice the next year and sailed her to the U.S.; the American government presented the ship to Queen Victoria the following year in a show of friendship.
After the British navy decommissioned the Resolute, the ship was broken up, with some of the timbers being used to make a pair of desks -- one for Queen Victoria and one for the U.S. President (and still in the Oval Office). Replicas of the American desk have appeared in various movies about the White House -- most prominently in "National Treasure 2: Book of Secrets," in which a hidden compartment contains an important clue.
Related article: Suggestions for AbitibiBowater's New Name.
Is that a prediction of things to come or just a failure to know history?
AbitibiBowater (AKA AbitibiUnderwater) announced today that it will become Resolute Forest Products on November 7 as it tries to leave behind its debt-burdened past and find a name that customers can pronounce.
"Resolute" means being determined or having a single-minded resolve. The word most famously appears in the name of the HMS Resolute, a British exploration ship that was abandoned in 1854 after being trapped in ice. American whalers freed her from the ice the next year and sailed her to the U.S.; the American government presented the ship to Queen Victoria the following year in a show of friendship.
After the British navy decommissioned the Resolute, the ship was broken up, with some of the timbers being used to make a pair of desks -- one for Queen Victoria and one for the U.S. President (and still in the Oval Office). Replicas of the American desk have appeared in various movies about the White House -- most prominently in "National Treasure 2: Book of Secrets," in which a hidden compartment contains an important clue.
Related article: Suggestions for AbitibiBowater's New Name.
Sunday, June 12, 2011
Suggestions for AbitibiBowater's New Name
Why didn't they ask us?
After costing creditors $6 billion and its stockholders another $2 billion, newsprint giant AbitibiBowater wants to shed its past by changing its name to one selected by employees.
The company expects to announce its new moniker in the fall after culling through more than 1,400 recent suggestions from employees, according to ForestTalk. Too bad it didn't ask its customers, former employees, investors, or creditors. We could have offered some colorful suggestions that don't entirely leave the past behind.
Dead Tree Edition's nickname for the company, "AbitibiUnderwater" doesn't work now that it has emerged from bankruptcy protection nearly debt-free and perhaps even profitable. In honor of that magical transformation AbiBow could be renamed Abracadabrawater.
Creditors and ex-employees left holding the bag when the company went Chapter 11 might prefer the name AbitweelNeverpayoo.
James Bond fans who see some kind of evil specter in Abitibi's dominance of the newsprint market might prefer AbitibiBlofeld.
Wall Street would go for AbitibiBiorefinery because "biorefinery" sounds like a much sexier investment than "pulp and paper mill".
CEO Richard Garneau (nicknamed "Rain Man" by employees of a previous company because of his uncanny knack for remembering numbers) revealed Thursday that the company's wood costs are 91% higher in Quebec than in the U.S, according to ForestTalk. So how about AhbuttobeOutofQuebec?
Those who are pessimistic about the company's outlook might select AbitibiTreadingwater. Or, with a Too Big To Fail twist, AbranchoftheCanadiangovernment.
And if you expect a return to bankruptcy court, there's always Chapter 22.
Related articles:
After costing creditors $6 billion and its stockholders another $2 billion, newsprint giant AbitibiBowater wants to shed its past by changing its name to one selected by employees.
The company expects to announce its new moniker in the fall after culling through more than 1,400 recent suggestions from employees, according to ForestTalk. Too bad it didn't ask its customers, former employees, investors, or creditors. We could have offered some colorful suggestions that don't entirely leave the past behind.
Dead Tree Edition's nickname for the company, "AbitibiUnderwater" doesn't work now that it has emerged from bankruptcy protection nearly debt-free and perhaps even profitable. In honor of that magical transformation AbiBow could be renamed Abracadabrawater.
Creditors and ex-employees left holding the bag when the company went Chapter 11 might prefer the name AbitweelNeverpayoo.
James Bond fans who see some kind of evil specter in Abitibi's dominance of the newsprint market might prefer AbitibiBlofeld.
Wall Street would go for AbitibiBiorefinery because "biorefinery" sounds like a much sexier investment than "pulp and paper mill".
CEO Richard Garneau (nicknamed "Rain Man" by employees of a previous company because of his uncanny knack for remembering numbers) revealed Thursday that the company's wood costs are 91% higher in Quebec than in the U.S, according to ForestTalk. So how about AhbuttobeOutofQuebec?
Those who are pessimistic about the company's outlook might select AbitibiTreadingwater. Or, with a Too Big To Fail twist, AbranchoftheCanadiangovernment.
And if you expect a return to bankruptcy court, there's always Chapter 22.
Related articles:
Tuesday, April 12, 2011
A 333-Percent Profit Margin at AbitibiBowater? Well, Not Really
Perennial money-loser AbitibiBowater, North America's largest newsprint producer, finally figured out last year how to turn a profit. All it took was a bankruptcy reorganization.
The company recently reported 4th Quarter 2010 profit of $4.24 billion on sales of $1.27 billion, for an unheard-of profit margin of 333%. That's right, its profit was three times greater than its sales. (Let’s try that as a word problem for elementary school math students: “If you sold 10 apples for $1 each and made a profit of $33, how much did each apple cost?”)
Most of the gain was from accounting, not actual sales, though AbitibiBowater’s business did improve enough during the quarter that it recorded operating income of $11 million, versus a $43 million loss the previous year. (Those of you in the newsprint business may not understand the phrase “operating income”. It’s when your revenue actually exceeds the cost of making your products. Believe it or not, operating income is actually quite common in some industries.)
Most of the huge profit gain came from one-time events related to “fresh start accounting” upon the company’s emergence from bankruptcy protection, which “resulted in the Company becoming a new entity for financial reporting purposes,” according to the recently released annual report.
The biggest fresh-start item was a $3.448 billion “gain on extinguishment of liabilities subject to compromise”. Translation: “We stiffed our creditors big time.” (Warning: Do not try this at home. If you stop paying your mortgage, the bank will not want to hear about your resulting increase in profitability.)
The new AbitibiBowater also showed confidence by claiming an income tax benefit of $1.627 billion from “the reversal of valuation allowances against certain deferred tax assets.” Translation: “We built up a lot of tax credits that were worthless when there was no chance of us owing income taxes for the foreseeable future. But now that we expect to be profitable in future years, we will be able to use those credits to avoid paying taxes. Isn’t Chapter 11 wonderful?”
The company expects its future to be brighter than its recent past because it emerged from bankruptcy protection with “a more flexible, lower-cost operating platform” and debt of only $900 million instead of $6.2 billion.
It also sees opportunity in the growing newsprint markets of Asia, Latin America, and the Middle East because some of its mills “are on or near deep sea ports”. Translation: "We need to find more customers that pay in currency that is actually worth something, rather than American dollars."
Other articles about AbitibiBowater include:
The company recently reported 4th Quarter 2010 profit of $4.24 billion on sales of $1.27 billion, for an unheard-of profit margin of 333%. That's right, its profit was three times greater than its sales. (Let’s try that as a word problem for elementary school math students: “If you sold 10 apples for $1 each and made a profit of $33, how much did each apple cost?”)
Most of the gain was from accounting, not actual sales, though AbitibiBowater’s business did improve enough during the quarter that it recorded operating income of $11 million, versus a $43 million loss the previous year. (Those of you in the newsprint business may not understand the phrase “operating income”. It’s when your revenue actually exceeds the cost of making your products. Believe it or not, operating income is actually quite common in some industries.)
Most of the huge profit gain came from one-time events related to “fresh start accounting” upon the company’s emergence from bankruptcy protection, which “resulted in the Company becoming a new entity for financial reporting purposes,” according to the recently released annual report.
The biggest fresh-start item was a $3.448 billion “gain on extinguishment of liabilities subject to compromise”. Translation: “We stiffed our creditors big time.” (Warning: Do not try this at home. If you stop paying your mortgage, the bank will not want to hear about your resulting increase in profitability.)
The new AbitibiBowater also showed confidence by claiming an income tax benefit of $1.627 billion from “the reversal of valuation allowances against certain deferred tax assets.” Translation: “We built up a lot of tax credits that were worthless when there was no chance of us owing income taxes for the foreseeable future. But now that we expect to be profitable in future years, we will be able to use those credits to avoid paying taxes. Isn’t Chapter 11 wonderful?”
The company expects its future to be brighter than its recent past because it emerged from bankruptcy protection with “a more flexible, lower-cost operating platform” and debt of only $900 million instead of $6.2 billion.
It also sees opportunity in the growing newsprint markets of Asia, Latin America, and the Middle East because some of its mills “are on or near deep sea ports”. Translation: "We need to find more customers that pay in currency that is actually worth something, rather than American dollars."
Other articles about AbitibiBowater include:
Saturday, June 26, 2010
Groundwood Paper's Carbon Footprint Much Lower Than Freesheet's, Study Says
Uncoated groundwood paper has less than half the carbon footprint of uncoated freesheet paper with the same purpose, a recent study by Canadian researchers suggests.
Not only does groundwood paper use fewer trees, but it also requires virtually no harmful chemicals to make and releases far less methane -- a greenhouse gas – when landfilled, the two Université de Montréal researchers found.
The researchers conducted a “cradle-to-grave” environmental assessment of AbitibiBowater’s Equal Offset groundwood paper in comparison with similar-quality uncoated freesheet (UFS) papers made at mills in Quebec and the U.S. South. None of the products studied contained recycled content.
The research report and accompanying fact sheet said that life cycle assessments of Abitibi’s other UFS-substitute products would probably yield similar results as Equal Offset. Abitibi markets the products as a lower-cost replacement for freesheet papers in such uses as direct mail and books.
Abitibi commissioned the independent, peer-reviewed research. Abitibi’s involvement may lead to charges of bias, but the notion that papers made with mechanical pulp are greener than those made with kraft pulp is not exactly a novel concept
“It was found that Equal Offset emits only about 38% of the greenhouse gases associated with the production of UFS over its life cycle,” the report says. “EO is made with mechanical pulp, which has a high yield, and is bulkier than freesheet made from chemical pulp, thus using fewer trees for the same area of paper.”
Methane Gas Emissions
The researchers calculated that more than 40% of UFS’ carbon footprint fell into the “End of Life” category, mostly from the release of methane as the paper degrades in landfills. (Yes, paper can be recycled, but there’s a limit to how many times wood-derived fibers can be recycled before they become unusable and end up in the waste stream.) UFS’ End of Life greenhouse-gas emissions were about seven times that of Equal Offset, they said.
“According to studies of methane generation in anaerobic landfills reported in the literature, products made of mechanical pulp, such as newsprint, degrade much less than office paper made of chemical pulps. This is thought to be due to non-reactivity of lignin in the decomposition reactions, as well as ‘protection’ of some of the cellulose. Further analysis by the US EPA estimates that 85% of the carbon in newsprint remains intact, compared to only 12% in office paper,” the report says.
The study looked at 15 different “environmental impact parameters”, not just carbon footprint. “The study considered a full range of inputs and outputs throughout the product life cycle, and the results were compelling” – Equal Offset’s impact was lower in 14 of the 15 categories, dramatically lower in some cases.
The UFS products used chemicals like sulfur and sulfuric acid in the pulping and bleaching process, as well as more starch (requiring farmland for growing potatoes and corn), according to the report. They also consumed more fossil fuel, partly because the Alma, Quebec mill that makes Equal Offset uses 95% hydro-electric power.
If the researchers’ conclusions are accurate and applicable to paper products in general, they suggest that a 100%-virgin groundwood paper is more environmentally friendly than a freesheet with 30% post-consumer waste – assuming no significant differences in the forestry practices that generated the virgin fiber.
And they confirm that the $8 billion or so that the U.S. government shelled out in black-liquor credits last year from a green-energy program actually did environmental damage not only by discouraging the use of recycled fiber but also by subsidizing freesheet products at the expense of groundwood.
For more articles about the difference between papers made with kraft pulp (freesheet) and those made with mechanical pulp (groundwood), please see:
- Pulp Fiction: Eco-Credits for Black Liquor: "Mechanical pulp is usually considered environmentally preferable to kraft because it uses fewer trees and causes less pollution."
- The Yellowing of National Geographic: Will Today's Copies Age Faster Than That Stack in Your Gramma's Attic? A disadvantage of groundwood papers is that they degrade faster than those containing only kraft pulp.
Tuesday, March 16, 2010
Is Domtar's Exit a Game Changer for Coated Paper?
Today we discovered what NewPage had up its sleeve when it announced a price increase for coated groundwood paper on Friday: It knew that Domtar was about to close its Columbus, Mississippi mill.
The two companies revealed today that Domtar next month will permanently close the mill, which has a single machine with the capacity to make 238,000 tons annually of medium-weight coated #5 and #4. NewPage will buy the product lines and trademarks, though it’s not clear whether it will continue to make Choctaw and the other products on its own machines.
The simultaneous news releases this morning were seemingly followed every hour by another North American mill announcing a $30-per-ton price increase on coated freesheet, coated groundwood, and/or supercalendered papers. Even AbitibiBowater, which postponed a price increase on CGW only a week ago because most competitors didn’t go along, came back to the price-increase party and brought supercal along.
One industry watcher called the closing of the Columbus mill “a game changer” because it might finally bring the CGW market into balance.
And another asked a question I can’t answer: If indeed NewPage is about to run out of money (see today's earlier article, Are NewPage and Verso Headed to the Altar?), how could it afford to buy Domtar out of the coated paper business?
Related articles:
The two companies revealed today that Domtar next month will permanently close the mill, which has a single machine with the capacity to make 238,000 tons annually of medium-weight coated #5 and #4. NewPage will buy the product lines and trademarks, though it’s not clear whether it will continue to make Choctaw and the other products on its own machines.
The simultaneous news releases this morning were seemingly followed every hour by another North American mill announcing a $30-per-ton price increase on coated freesheet, coated groundwood, and/or supercalendered papers. Even AbitibiBowater, which postponed a price increase on CGW only a week ago because most competitors didn’t go along, came back to the price-increase party and brought supercal along.
One industry watcher called the closing of the Columbus mill “a game changer” because it might finally bring the CGW market into balance.
And another asked a question I can’t answer: If indeed NewPage is about to run out of money (see today's earlier article, Are NewPage and Verso Headed to the Altar?), how could it afford to buy Domtar out of the coated paper business?
Related articles:
Monday, March 15, 2010
Are NewPage and Verso Headed to the Altar?
Three hedge funds trying to take control of NewPage already own rival Verso Paper and have a major stake in AbitibiBowater, a published report said Monday night.
The "vulture trio" has scooped up more than 50% of NewPage's second-lien bonds in a "loan to own" maneuver, betting that they will be in the driver's seat when NewPage goes into financial collapse, according to a Debtwire article that appeared in the Financial Times. Five different analysts told Debtwire that NewPage could run out of cash this year.
The trio includes Apollo Management, which has a controlling interest in Verso, and Avenue Capital, which is likely to hold "a large stake" in AbitibiBowater when that company emerges from Chapter 11 bankruptcy reorganization, the article said.
Verso and NewPage together control about 55% of the North American coated freesheet market and 50% of the continent's coated groundwood market. Throw in AbitibiBowater and the CGW share would jump to about 65% and the supercalendered share would surpass 50%.
"Granted, any transaction that involves the potential for such massive consolidation will invite heavy scrutiny from antitrust regulators," the article said. "But the radical repricing afflicting the paper industry" may remove the legal hurdles.
The "vulture trio" has scooped up more than 50% of NewPage's second-lien bonds in a "loan to own" maneuver, betting that they will be in the driver's seat when NewPage goes into financial collapse, according to a Debtwire article that appeared in the Financial Times. Five different analysts told Debtwire that NewPage could run out of cash this year.
The trio includes Apollo Management, which has a controlling interest in Verso, and Avenue Capital, which is likely to hold "a large stake" in AbitibiBowater when that company emerges from Chapter 11 bankruptcy reorganization, the article said.
Verso and NewPage together control about 55% of the North American coated freesheet market and 50% of the continent's coated groundwood market. Throw in AbitibiBowater and the CGW share would jump to about 65% and the supercalendered share would surpass 50%.
"Granted, any transaction that involves the potential for such massive consolidation will invite heavy scrutiny from antitrust regulators," the article said. "But the radical repricing afflicting the paper industry" may remove the legal hurdles.
Friday, March 12, 2010
Where Are Coated Prices Headed? Let's Vote On It!
Just when the wheels had fallen off the attempt to raise North American coated-groundwood prices, the wagon started rolling again today.
NewPage announced a $30-per-ton increase on coated-groundwood (CGW) and coated-freesheet (CFS) prices to take effect on Monday. The pricing for most contract customers cannot be changed until April 1, and many have locked in prices through June 30.
Today's announcement came only a couple of days after AbitibiBowater started spreading the word that it was “postponing” its Feb. 25 attempt to raise CGW prices by $60 per ton on April 1. Kruger, which seemed to be the only other mill that jumped on that bandwagon, has also reportedly backed down in recent days.
The North American coated-paper market still suffers from overcapacity that has kept prices low. But thanks to an earthquake, floods, a strike, and a government ruling, an argument can be made for jacking up CFS prices.
Last month’s Chilean earthquake, wet weather in the U.S. South, and other factors have caused prices for kraft pulp -– the main ingredient in CFS -– to skyrocket. Don’t be surprised to see shutdowns soon at CFS mills that rely on purchased pulp. And even integrated mills may be tempted to idle their paper machines so that they can sell their now-valuable pulp to a hungry market.
An anti-dumping decision in the U.S. and a similar case in Europe have also cooled Asian producers on selling low-priced coated sheets in the U.S.
The case is weaker for CGW, a market in which prices had drifted lower early this after seeming to stabilize in the fall. Most CGW products use relatively little, if any, kraft pulp, and Asian producers have not been a factor in North America.
A few years ago, a strike in Finland would have sent U.S. CGW buyers into a panic. But the weak dollar had already chased the Finns away, limiting the impact in North America of a port strike that is strangling the Finnish paper industry.
My guess is that CGW prices will start moving up only after CFS does and only after more CGW capacity is idled.
What’s your bet? On the right you’ll see a chance to vote on where you think the RISI index for 40# coated #5 (at $735 in February) will be on July 1. Warning: I tried a similar crowdsourcing exercise on CGW prices a year ago, and hardly anyone correctly predicted the market crash that came shortly afterward.
Related Articles:
NewPage announced a $30-per-ton increase on coated-groundwood (CGW) and coated-freesheet (CFS) prices to take effect on Monday. The pricing for most contract customers cannot be changed until April 1, and many have locked in prices through June 30.
Today's announcement came only a couple of days after AbitibiBowater started spreading the word that it was “postponing” its Feb. 25 attempt to raise CGW prices by $60 per ton on April 1. Kruger, which seemed to be the only other mill that jumped on that bandwagon, has also reportedly backed down in recent days.
The North American coated-paper market still suffers from overcapacity that has kept prices low. But thanks to an earthquake, floods, a strike, and a government ruling, an argument can be made for jacking up CFS prices.
Last month’s Chilean earthquake, wet weather in the U.S. South, and other factors have caused prices for kraft pulp -– the main ingredient in CFS -– to skyrocket. Don’t be surprised to see shutdowns soon at CFS mills that rely on purchased pulp. And even integrated mills may be tempted to idle their paper machines so that they can sell their now-valuable pulp to a hungry market.
An anti-dumping decision in the U.S. and a similar case in Europe have also cooled Asian producers on selling low-priced coated sheets in the U.S.
The case is weaker for CGW, a market in which prices had drifted lower early this after seeming to stabilize in the fall. Most CGW products use relatively little, if any, kraft pulp, and Asian producers have not been a factor in North America.
A few years ago, a strike in Finland would have sent U.S. CGW buyers into a panic. But the weak dollar had already chased the Finns away, limiting the impact in North America of a port strike that is strangling the Finnish paper industry.
My guess is that CGW prices will start moving up only after CFS does and only after more CGW capacity is idled.
What’s your bet? On the right you’ll see a chance to vote on where you think the RISI index for 40# coated #5 (at $735 in February) will be on July 1. Warning: I tried a similar crowdsourcing exercise on CGW prices a year ago, and hardly anyone correctly predicted the market crash that came shortly afterward.
Related Articles:
- Coated Paper Prices: Can They Get Uglier? Results of last year's poll on CGW prices.
- A Price Increase on Coated Paper? What is Abitibi Smoking? AbitibiBowater's announcement of CGW price increases last month was based on desperation, not market reality.
Saturday, March 6, 2010
Black Liquor Scorecard: 21 Companies Earned $6.5 Billion in 2009
The $6.5 billion in controversial black-liquor credits earned in 2009 by 21 publicly traded pulp and paper companies was far more than their total profit for the year.
Despite the government’s unintended largesse, the 21 companies had combined net income of only $2.2 billion, according to an exclusive Dead Tree Edition analysis of documents filed with the Securities and Exchange Commission.
Without the U.S. government subsidy, only nine of the companies would have been profitable in 2009, In fact, four recipients – AbitibiBowater, Weyerhaeuser, NewPage, and Sappi – together lost nearly $2.7 billion last year despite receiving more than $1 billion from the black-liquor program that expired on Dec. 31.
At least one-fourth of the country’s capacity to make kraft pulp is in the hands of privately held companies that don’t have to file with the SEC. Assuming they took advantage of the “alternative fuel mixture” program in the same way that their publicly held peers did, the federal government probably shelled out between $8 and $9 billion to pay to do what they would have done anyway – use black liquor, a pulp byproduct, as a fuel source for their pulp operations.
Several of the public companies' reports state that they expect to receive no subsidies for black liquor this year. And they're right.
But don’t tell that to Congress or the news media. Obama Joins in on the Black Liquor Two-Step documented how sloppy reporting by leading news organizations had allowed Democratic Congress members to claim they were saving money by excluding black liquor from the new Cellulosic Biofuel Producer Credits (CBPC) -- a program that black liquor couldn't qualify for anyway.
In the 12 days since that was published, the black-liquor silliness in Washington has gotten even worse, with Republicans joining the shell game. Sen. Jim Bunning (R-KY) tried to play taxpayer hero this week by proposing to “pay” for a new jobs program by closing the non-existent CBPC loophole. But Democrats blocked that effort because they have already committed to using the bogus savings for healthcare reform.
Bunning's effort to exclude black liquor from CBPC "is absolutely meritorious and should be adopted whatever else Congress does," The Washington Post opined in a fact-challenged editorial. "This particular piece of corporate welfare showers paper companies with about $2.5 billion per year . . . that encourages them to generate power with 'black liquor,' an 'alternative fuel.'" Nope. Not a dime has been paid to pulp and paper companies under CBPC.
Here are the 21 publicly traded companies, listed according to the amount of credits they received. The first number is the amount of black-liquor credits reported, the second is 2009 net income:
Despite the government’s unintended largesse, the 21 companies had combined net income of only $2.2 billion, according to an exclusive Dead Tree Edition analysis of documents filed with the Securities and Exchange Commission.
Without the U.S. government subsidy, only nine of the companies would have been profitable in 2009, In fact, four recipients – AbitibiBowater, Weyerhaeuser, NewPage, and Sappi – together lost nearly $2.7 billion last year despite receiving more than $1 billion from the black-liquor program that expired on Dec. 31.
At least one-fourth of the country’s capacity to make kraft pulp is in the hands of privately held companies that don’t have to file with the SEC. Assuming they took advantage of the “alternative fuel mixture” program in the same way that their publicly held peers did, the federal government probably shelled out between $8 and $9 billion to pay to do what they would have done anyway – use black liquor, a pulp byproduct, as a fuel source for their pulp operations.
Several of the public companies' reports state that they expect to receive no subsidies for black liquor this year. And they're right.
But don’t tell that to Congress or the news media. Obama Joins in on the Black Liquor Two-Step documented how sloppy reporting by leading news organizations had allowed Democratic Congress members to claim they were saving money by excluding black liquor from the new Cellulosic Biofuel Producer Credits (CBPC) -- a program that black liquor couldn't qualify for anyway.
In the 12 days since that was published, the black-liquor silliness in Washington has gotten even worse, with Republicans joining the shell game. Sen. Jim Bunning (R-KY) tried to play taxpayer hero this week by proposing to “pay” for a new jobs program by closing the non-existent CBPC loophole. But Democrats blocked that effort because they have already committed to using the bogus savings for healthcare reform.
Bunning's effort to exclude black liquor from CBPC "is absolutely meritorious and should be adopted whatever else Congress does," The Washington Post opined in a fact-challenged editorial. "This particular piece of corporate welfare showers paper companies with about $2.5 billion per year . . . that encourages them to generate power with 'black liquor,' an 'alternative fuel.'" Nope. Not a dime has been paid to pulp and paper companies under CBPC.
Here are the 21 publicly traded companies, listed according to the amount of credits they received. The first number is the amount of black-liquor credits reported, the second is 2009 net income:
- International Paper: $2.06 billion in black liquor credits; $2.36 billion net income
- Smurfit-Stone Container: $654 million; $8 million
- Domtar: $498 million; $310 million
- MeadWestvaco: $375 million; $225 million
- Weyerhaeuser: $344 million; $-545 million
- NewPage: $304 million; $-308 million
- AbitibiBowater: $276 million; $-1.553 billion
- Verso Paper: $239 million; $106 million
- Temple-Inland: $218 million; $206 million
- Boise: $208 million; $154 million
- Rayonier: $205 million; $313 million
- Kapstone Paper and Packaging: $178 million; $80 million
- Packaging Corporation of America: $176 million; $266 million
- Clearwater Paper: $171 million; $182 million
- Graphic Packaging: $147 million; $56 million
- SAPPI: $136 million; $-251 million
- Buckeye Technologies: $130 million; $154 million
- P.H. Glatfelter: $108 million; $123 million
- Rock-Tenn: $75 million; $279 million
- Appleton Papers: $18 million; $25 million
- Wausau: $14 million; $21 million
Thursday, February 25, 2010
A Price Increase on Coated Paper? What is Abitibi Smoking?
AbitibiBowater stunned its customers today by announcing a huge price increase for coated paper – a move that is already DOA, thanks to Abitibi’s competitors.
The announcement says simply that prices for all coated groundwood papers, from standard #5 to high-brightness #4, will increase by $60/ton ($3/cwt.) on April 1.
A couple of months ago, low inventories and an economic recovery caused mills and prognosticators to talk about a possible increase in coated prices this spring. Manufacturers predicted that the expiration of black-liquor subsidies would cause paper machines (usually, someone else’s paper machines) to be shuttered. Some coated mills were unseasonably busy early this year as customers restocked their depleted inventories in advance of price increases.
But machine shutdowns never happened, the shaky economic recovery has mostly bypassed print advertising so far, and spot prices started drifting lower rather than higher.
Hopes for a price hike any time soon were pretty well dashed in the past week as word got out that the largest coated supplier, NewPage, had restarted two mothballed machines. So much for a tight market.
Then #2 Verso bragged to stock analysts yesterday that it “enjoys a distinct manufacturing cost advantage vs. its competition” in its “key product areas” – ultralightweight coated #5 (ULWC) and coated freesheet #3. Verso's presentation included a chart that shows it having a $567 cost per ton to make ULWC, versus a $634 average for the competition.
Between the two of them, NewPage and Verso have a bit more than a 50% share of both the coated-groundwood and coated-freesheet markets in North America. A significant price increase can’t get rolling without a significant push, and perhaps a loss of market share, by one of these leaders.
Verso executives told the analysts they would continue to “take market related downtime to match demand with supply” and to develop new products rather than dropping prices to keep their machines full. But with its apparent low-cost position, Verso seems unlikely to shut down capacity in hopes of driving up market prices.
And NewPage, which single-handledly propped up the coated market a couple of years ago by shutting down high-cost machines and mills, is clearly no longer up to the task of providing such market leadership. It lost $308 million last year despite receiving $304 million in black-liquor subsidies, which it won’t enjoy this year.
Restarting the two machines seems to be a sign of desperation for NewPage, paper-market analyst Verle Sutton pointed out this week. The heavily indebted company may be “running for cash” so that it doesn’t end up joining AbitibiBowater in Chapter 11 bankruptcy reorganization.
And what about coated freesheet? Next week’s decision on the anti-dumping case against some Chinese and Indonesian mills might boost the North American market. (The European Union launched a similar probe last week. Two of the the complainants -- Arjo Wiggins, known as Appleton Coated in the U.S., and SAPPI -- are also involved in the U.S. case.)
But Verso claims an average cost advantage of $61 per ton for coated freesheet, including a whopping $284-per-ton advantage against two competitors. It will be in no hurry to shut down profitable machines. And struggling NewPage has a huge 40% share of the North American coated-freesheet market.
For further reading:
The announcement says simply that prices for all coated groundwood papers, from standard #5 to high-brightness #4, will increase by $60/ton ($3/cwt.) on April 1.
A couple of months ago, low inventories and an economic recovery caused mills and prognosticators to talk about a possible increase in coated prices this spring. Manufacturers predicted that the expiration of black-liquor subsidies would cause paper machines (usually, someone else’s paper machines) to be shuttered. Some coated mills were unseasonably busy early this year as customers restocked their depleted inventories in advance of price increases.
But machine shutdowns never happened, the shaky economic recovery has mostly bypassed print advertising so far, and spot prices started drifting lower rather than higher.
Hopes for a price hike any time soon were pretty well dashed in the past week as word got out that the largest coated supplier, NewPage, had restarted two mothballed machines. So much for a tight market.
Then #2 Verso bragged to stock analysts yesterday that it “enjoys a distinct manufacturing cost advantage vs. its competition” in its “key product areas” – ultralightweight coated #5 (ULWC) and coated freesheet #3. Verso's presentation included a chart that shows it having a $567 cost per ton to make ULWC, versus a $634 average for the competition.
Between the two of them, NewPage and Verso have a bit more than a 50% share of both the coated-groundwood and coated-freesheet markets in North America. A significant price increase can’t get rolling without a significant push, and perhaps a loss of market share, by one of these leaders.
Verso executives told the analysts they would continue to “take market related downtime to match demand with supply” and to develop new products rather than dropping prices to keep their machines full. But with its apparent low-cost position, Verso seems unlikely to shut down capacity in hopes of driving up market prices.
And NewPage, which single-handledly propped up the coated market a couple of years ago by shutting down high-cost machines and mills, is clearly no longer up to the task of providing such market leadership. It lost $308 million last year despite receiving $304 million in black-liquor subsidies, which it won’t enjoy this year.
Restarting the two machines seems to be a sign of desperation for NewPage, paper-market analyst Verle Sutton pointed out this week. The heavily indebted company may be “running for cash” so that it doesn’t end up joining AbitibiBowater in Chapter 11 bankruptcy reorganization.
And what about coated freesheet? Next week’s decision on the anti-dumping case against some Chinese and Indonesian mills might boost the North American market. (The European Union launched a similar probe last week. Two of the the complainants -- Arjo Wiggins, known as Appleton Coated in the U.S., and SAPPI -- are also involved in the U.S. case.)
But Verso claims an average cost advantage of $61 per ton for coated freesheet, including a whopping $284-per-ton advantage against two competitors. It will be in no hurry to shut down profitable machines. And struggling NewPage has a huge 40% share of the North American coated-freesheet market.
For further reading:
- "Black Liquor" Credits Are Helping Paper Buyers: NewPage claims that buyers, not paper mills, got most of the benefit from the multibillion-dollar black liquor credits in the form of lower paper prices.
- NewPage Turning Over a New Page: No More Shutdowns: The market leader has closed all of its high-cost machines in response to declining demand.
- Coated Paper Market: Been Down So Long This Looks Like Up: After crashing earlier in the year, prices for coated paper finally seemed to stabilize a few months ago.
Saturday, January 23, 2010
A 'Salmon Week' For North American Papermakers
Several North American papermakers know the feeling, as evidenced by several events this past week:
- Rick Willett announced his resignation as CEO of the continent’s largest maker of magazine paper, NewPage, saying, “After considerable personal reflection on my longer term career interests, I have made the difficult decision to leave NewPage to pursue opportunities in other industries." My guesses as to what he might have left unsaid:
- “Other industries – yeah, like ones where you can actually make a profit.”
- “When the (black) liquor runs out, it’s time to leave the party.”
- “Angry customers, lots of half-idle machines, and a mountain of high-interest debt: My work here is done!”
- “It’s time to move on to another chapter in my career, and I don’t want it to be Chapter 11.”
- AbitibiBowater had to idle its Fort Frances pulp and paper mill because cold weather caused the effluent-treatment system to fail. You mean it gets cold in Ontario?
- Nearly 400,000 gallons of black liquor stored at Tembec’s closed pulp mill in Marathon, Ontario keeps leaking before it can be transfered to, of all places, the Fort Frances mill. Some has apparently made it into Lake Superior. Silly Canadians! Why can’t they act like Americans and get big tax breaks for their pulp byproducts?
- Speaking of Tembec, the owner of its former mill in St. Francisville, LA, filed for Chapter 11 only 5 months after restarting the shuttered operation to make paperboard and paper bags. Question for the investors in Renew Paper: Tembec concluded 3 years ago that the mill was a dog. Did you bother to check it for fleas before you sinking millions into buying and fixing it up?
- Catalyst Paper had a bad-news hat trick this week – a bankruptcy-court lawsuit asking it to return millions of dollars paid to it by Quebecor World, closure of its recycled-pulp operation in British Columbia, and permanent idling of its BC newsprint and directory mill. The Quebecor World bankruptcy trustee is also seeking another $18.5 million from UPM and smaller amounts from more than a thousand other vendors.
- And for those counting on a rebound in magazine advertising to lift the paper business, consider this: The latest issue of Newsweek, which is placing a multimillion-dollar bet on upgraded paper, is only 52 pages, including the cover story by President Obama. Chief rival Time has only 56.
- Newsweek Spending Millions in Paper Money: The newsmagazine's new design includes an expensive bet on heavier paper of higher quality.
- No Quick Exit For AbitibiBowater: The Canadian giant is likely to remain in Chapter 11 until at least late this year.
- "Black Liquor" Credits Are Helping Paper Buyers: The government subsidy was a two-edged sword for NewPage, giving it much-needed cash but driving down paper prices so much that it had to renegotiate its debt.
Saturday, January 9, 2010
For U.S. Papermakers, the (Black) Liquor's Gone, But the Party Goes On
The huge black-liquor subsidy of pulp mills expired last week, but that isn’t stopping the U.S. forest-products industry from tapping taxpayers' money in other ways.
Three-fourths of the pulp and paper companies that received U.S. black-liquor tax credits are signed up to benefit from another biofuel subsidy, the new Biomass Crop Assistance Program (BCAP). But also among the more than 100 mills that have been approved as BCAP "biomass conversion facilities" are at least several that were put at a competitive disadvantage by the black-liquor program, which expired on Dec. 31.
Various paper companies are also getting government help to reduce reliance on fossil fuels, using state grants funded by federal economic-stimulus programs. Just this week, Maine awarded $2 million to Verso Paper’s Bucksport mill and smaller amounts to five other paper companies for investments in such projects as heat recovery and biomass boilers. Last month, Wisconsin made similar energy-efficiency grants totaling about $5 million to four paper companies.
Say hello to Uncle Sam
U.S. paper companies have historically avoided government entanglement. But after some left millions of dollars on the table last year by being late to the black-liquor party, they are definitely keeping an eye on Uncle Sam's wallet now.
BCAP is nowhere near as generous as the black-liquor credits, and the benefits to paper mills and other buyers of biomass will be indirect and uncertain. Boosted by a $517 million appropriation for the first quarter of 2010, the program provides subsidies to suppliers rather than users of biomass.
By being BCAP-approved sites, biomass users – such as paper mills that burn bark, limbs and sawdust to fire their boilers – will presumably be able to buy at less-than-market prices. As with the black-liquor credits, critics are already complaining that BCAP will distort markets in a way that unfairly hurts some businesses without doing much for the environment.
Among the companies and mills on the list of BCAP-approved facilities are:
Three-fourths of the pulp and paper companies that received U.S. black-liquor tax credits are signed up to benefit from another biofuel subsidy, the new Biomass Crop Assistance Program (BCAP). But also among the more than 100 mills that have been approved as BCAP "biomass conversion facilities" are at least several that were put at a competitive disadvantage by the black-liquor program, which expired on Dec. 31.
Various paper companies are also getting government help to reduce reliance on fossil fuels, using state grants funded by federal economic-stimulus programs. Just this week, Maine awarded $2 million to Verso Paper’s Bucksport mill and smaller amounts to five other paper companies for investments in such projects as heat recovery and biomass boilers. Last month, Wisconsin made similar energy-efficiency grants totaling about $5 million to four paper companies.
Say hello to Uncle Sam
U.S. paper companies have historically avoided government entanglement. But after some left millions of dollars on the table last year by being late to the black-liquor party, they are definitely keeping an eye on Uncle Sam's wallet now.
BCAP is nowhere near as generous as the black-liquor credits, and the benefits to paper mills and other buyers of biomass will be indirect and uncertain. Boosted by a $517 million appropriation for the first quarter of 2010, the program provides subsidies to suppliers rather than users of biomass.
By being BCAP-approved sites, biomass users – such as paper mills that burn bark, limbs and sawdust to fire their boilers – will presumably be able to buy at less-than-market prices. As with the black-liquor credits, critics are already complaining that BCAP will distort markets in a way that unfairly hurts some businesses without doing much for the environment.
Among the companies and mills on the list of BCAP-approved facilities are:
- All of the top 12 producers of kraft pulp in the U.S. and 24 of the 32 known producers. Those companies earned an estimated $8 billion-plus last year from a federal alternative-fuel program simply by following the standard industry practice of using black liquor, a pulp byproduct, as an energy source for their mills.
- Eighteen mills owned by International Paper, the #1 recipient of the black-liquor credits.
- The Woodland pulp mill in Baileyville, ME, which Domtar reopened last year (while simultaneously closing a Canadian kraft pulp mill) specifically because of the black-liquor credits. An improving global pulp market has enabled the mill to continue running even without the credits.
- An East Millinocket, Maine directory mill affiliated with Fraser Papers. Fraser said the black-liquor credits helped push it into bankruptcy reorganization last year; it couldn't get the credits because its kraft pulp comes from Canada. The Maine program also made grants to three other Fraser mills.
- The Boise Inc. mill in DeRidder, LA that used the black-liquor credits to grab share – and hurt competitors -- in the newsprint market. Last spring, Boise publicly announced a decrease of more than 20% on newsprint prices, made possible by its unusual use of (subsidized) kraft pulp in its newsprint.
- Catalyst Paper’s 100%-recycled newsprint mill in Snowflake, AZ, which lost significant business because it wasn’t able to match Boise’s pricing. It became a poster child for opposition to the black-liquor credits, a supposed environmental subsidy that in this case encouraged a switch from recycled to virgin pulp.
- AbitibiBowater newsprint mills in August, GA and Grenada, MS, which also suffered from Boise’s move.
- The U.S. Department of Agriculture's BCAP Web site.
- Black Liquor Scorecard: $4.7 Billion Through September, which lists black-liquor credits earned through Third Quarter 2009 by each of the publicly traded kraft-pulp producers.
- International Paper Drowns Its Sorrows in Black Liquor: The giant company earned more in black-liquor subsidies last year than it made from selling actual products.
- Did Black Liquor Credits Pave the Way for Healthcare Legislation?: How the reopening of Domtar's Woodland mill played a role in a key Congressional vote.
Wednesday, November 4, 2009
No Quick Exit For AbitibiBowater
With AbitibiBowater likely to remain under bankruptcy protection well into next year, a Canadian court has approved additional financing for the giant papermaker.
The company received permission Friday from a Montreal Superior Court to increase its debtor-in-possession (DIP) financing from $140 million to $370 million, despite the objections of some creditors.
Ernst & Young Inc., the court-appointed monitor, recommended approval of the DIP financing because it believes AbitibiBowater will remain under bankruptcy protection until at least late next summer. The accounting firm told the court that AbitibiBowater, North America's largest newsprint maker, projects negative cash flow of $70 million next year.
AbitibiBowater was hoping to exit bankruptcy protection in just a few months. But Ernst & Young says “it will take a number of months to complete the business plan and consider all of the restructuring scenarios, negotiate the Plan of Arrangement, raise exit financing, conduct creditor meetings, complete negotiations with employee groups and complete all of the other tasks required to emerge” from bankruptcy protection.
The company’s liquidity requirements “are highly dependent upon the market price and demand for paper and wood products as well as the exchange rate of the Canadian dollar relative to the U.S. dollar,” notes the report.
AbitibiBowater’s projections assume that announced newsprint price increases of $120 per ton from the August low will be implemented by the first of the year and then level off. That is more conservative than independent projections from RISI, which show newsprint prices continuing to rise during 2010.
But the projections also assume an exchange rate of 1 Canadian dollar to 90 U.S. cents, while in recent weeks the Canadian dollar has been a few cents stronger. With each penny in the exchange rate equating to $17 million in annual cash flow and the recent volatility in the U.S. dollar, AbitibiBowater needs access to additional DIP funds so that it can weather fluctuations in currency and paper markets, the Ernst & Young report says.
Meanwhile, a provincial official has made vague comments in recent days about Quebec possibly investing in AbitibiBowater, and a Canadian union has delayed contract negotiations until it gets resolution on the company’s $1.3 billion in unfunded pension liabilities.
AbitibiBowater (AKA AbitibiUnderwater) entered bankruptcy protection in April and has subsequently been damaged even further by declining paper prices and the strengthening Canadian currency.
For other recent articles about AbitibiBowater, please see:
The company received permission Friday from a Montreal Superior Court to increase its debtor-in-possession (DIP) financing from $140 million to $370 million, despite the objections of some creditors.
Ernst & Young Inc., the court-appointed monitor, recommended approval of the DIP financing because it believes AbitibiBowater will remain under bankruptcy protection until at least late next summer. The accounting firm told the court that AbitibiBowater, North America's largest newsprint maker, projects negative cash flow of $70 million next year.
AbitibiBowater was hoping to exit bankruptcy protection in just a few months. But Ernst & Young says “it will take a number of months to complete the business plan and consider all of the restructuring scenarios, negotiate the Plan of Arrangement, raise exit financing, conduct creditor meetings, complete negotiations with employee groups and complete all of the other tasks required to emerge” from bankruptcy protection.
The company’s liquidity requirements “are highly dependent upon the market price and demand for paper and wood products as well as the exchange rate of the Canadian dollar relative to the U.S. dollar,” notes the report.
AbitibiBowater’s projections assume that announced newsprint price increases of $120 per ton from the August low will be implemented by the first of the year and then level off. That is more conservative than independent projections from RISI, which show newsprint prices continuing to rise during 2010.
But the projections also assume an exchange rate of 1 Canadian dollar to 90 U.S. cents, while in recent weeks the Canadian dollar has been a few cents stronger. With each penny in the exchange rate equating to $17 million in annual cash flow and the recent volatility in the U.S. dollar, AbitibiBowater needs access to additional DIP funds so that it can weather fluctuations in currency and paper markets, the Ernst & Young report says.
Meanwhile, a provincial official has made vague comments in recent days about Quebec possibly investing in AbitibiBowater, and a Canadian union has delayed contract negotiations until it gets resolution on the company’s $1.3 billion in unfunded pension liabilities.
AbitibiBowater (AKA AbitibiUnderwater) entered bankruptcy protection in April and has subsequently been damaged even further by declining paper prices and the strengthening Canadian currency.
For other recent articles about AbitibiBowater, please see:
- There's Little Clarity About Some SCA Papers, which reports that the company is making supercalendered paper on a coated machine.
- Noisy Boise Is Reviving Its Newsprint Sales: How the termination of a marketing agreement with AbitibiBowater and huge black-liquor subsidies in the U.S. led to newsprint prices crashing.
- Black Liquor Credits Top $3 Billion So Far and Canadians Belly Up to the Black-Liquor Bar: The company is benefiting from the U.S.'s black-liquor subsidies and is in line to receive some from Canada as well.
Saturday, October 10, 2009
Canadians Belly Up to the Black-Liquor Bar
Following in the footsteps of their American competitors, Canadian pulp and paper mills received government approval Friday for $1 billion in black-liquor funds.
The Pulp and Paper Green Transformation Program is a response to a U.S. tax loophole that is keeping some American mills afloat and helping to push some Canadian companies toward or into bankruptcy. And it seems designed to avoid charges of unfair trade practices from mills in the U.S., which is the largest market for most Canadian mills.
The program will help finance investments to "improve environmental performance through increased renewable energy production or improved energy efficiency" at 38 mills owned by 24 companies, said a news release from Natural Resources Canada. The funds were assigned based on each company's production of black liquor, an energy-rich byproduct of the kraft pulp process. But eligible companies can use the funds at mills that do not produce black liquor.
The largest beneficiary is Domtar Corp., with $143 million. Domtar has already received $183 million this year in U.S. black-liquor credits, while its main American competitor, International Paper, has received $1 billion.
At least three of the Canadian recipients -- AbitibiBowater, Fraser, and Smurfit-Stone Container Corp. -- are in bankruptcy reorganization, while several others are struggling to avoid bankruptcy court. (Click here for a list of the recipients, the amounts granted, and the mills getting the investments.)
The Canadian govnerment is scheduled to pay out the money late this year or early next year, about the time that the $6 billion-plus U.S. program is slated to expire.
For more information about the controversial black-liquor program in the U.S., please see:
The Pulp and Paper Green Transformation Program is a response to a U.S. tax loophole that is keeping some American mills afloat and helping to push some Canadian companies toward or into bankruptcy. And it seems designed to avoid charges of unfair trade practices from mills in the U.S., which is the largest market for most Canadian mills.
The program will help finance investments to "improve environmental performance through increased renewable energy production or improved energy efficiency" at 38 mills owned by 24 companies, said a news release from Natural Resources Canada. The funds were assigned based on each company's production of black liquor, an energy-rich byproduct of the kraft pulp process. But eligible companies can use the funds at mills that do not produce black liquor.
The largest beneficiary is Domtar Corp., with $143 million. Domtar has already received $183 million this year in U.S. black-liquor credits, while its main American competitor, International Paper, has received $1 billion.
At least three of the Canadian recipients -- AbitibiBowater, Fraser, and Smurfit-Stone Container Corp. -- are in bankruptcy reorganization, while several others are struggling to avoid bankruptcy court. (Click here for a list of the recipients, the amounts granted, and the mills getting the investments.)
The Canadian govnerment is scheduled to pay out the money late this year or early next year, about the time that the $6 billion-plus U.S. program is slated to expire.
For more information about the controversial black-liquor program in the U.S., please see:
Sunday, September 27, 2009
There's Little Clarity About Some SCA Papers
Is it coated or is it supercalendered? Only the paper mill knows for sure.
We keep getting reports of SCA papers being made on coated machines, along with suspicions that the papers are actually coated rather than supercalendered.
Reel Time Report surfaced the issue earlier this month by reporting claims that Verso’s new Clarity SCA+, which is being made on a lightweight-coated (LWC) machine, was actually a coated sheet.
“Producing an SC-A+ grade is not an easy thing to do. It seems nearly impossible on a machine designed to produce coated groundwood,” said the newsletter, which is available by subscription from Forestweb by contacting publisher@forestweb.com. “The more logical path, from a production-cost perspective, is to simply produce coated groundwood and label it SC-A — maybe bleach the grade a little less, perhaps change the coating formulation some — but the fewer changes the better. That seems to be what Verso is doing.”
My sources tell me that Verso insists it is using proprietary technology to make SCA+ and SCA on a coated-paper machine, but at least one competitor insists that the SCA+ is actually coated. Some sources agree with Reel Time Report in questioning whether SCA+ and LWC can be made on the same machine, but one source notes that the Clarity line has the crackly sound of a supercalendered paper.
Verso has muddied the waters by making SCA on both the LWC machine and the supercalendered machines at the same mill in Sartell, MN. Both are called Clarity SCA, but the specs are different depending upon the machine. Between those differences and tweaks to the new product, printers are having fits trying to evaluate runnability and ink consumption on Clarity SCA, which many customers are eager to use because of its aggressive pricing, sources say.
Sources also tell me that AbitibiBowater has shifted some production of SCA from idled Canadian mills to its coated mill in Catawba, SC. That makes sense given the mill’s low-cost position, the strength of the Canadian dollar, and the black-liquor subsidy of American-made kraft pulp. But again it raises questions about whether the paper is really an SCA or just lightly coated.
We’re also getting reports of an SC sheet coming out of Myllykoski’s Alsip, IL, which only has a coated machine. That may stem from confusion with Myllykoski’s SC mills in the U.S. and Europe. But Myllykoski has been more reluctant than most competitors to take downtime at Alsip during this weak market, so perhaps that mill is producing some grades that are not on the official list of its products.
Catalyst Paper has also toyed with making a paper for the SCA market on its Port Alberni, BC LWC machine but has clearly told customers that the paper is coated. Sources indicate the future of that product is uncertain.
Some people would argue that none of this matters, that the issue is not how the paper is made but rather how it performs. Don’t tell that to the printers. Even the best SCA+ papers consume more ink than LWC and need different tension settings on the web. Because clay and other materials that provide gloss are embedded in the sheet rather than on the surface, as with coated paper, SC papers tend to have less surface strength and are therefore less tolerant of high-tack inks.
What is clear is that North American paper mills are battling overcapacity by using their coated paper machines to make an increasingly wide variety of uncoated papers.
See also The Rush to Make Uncoated Paper on Coated Machines.
We keep getting reports of SCA papers being made on coated machines, along with suspicions that the papers are actually coated rather than supercalendered.
Reel Time Report surfaced the issue earlier this month by reporting claims that Verso’s new Clarity SCA+, which is being made on a lightweight-coated (LWC) machine, was actually a coated sheet.
“Producing an SC-A+ grade is not an easy thing to do. It seems nearly impossible on a machine designed to produce coated groundwood,” said the newsletter, which is available by subscription from Forestweb by contacting publisher@forestweb.com. “The more logical path, from a production-cost perspective, is to simply produce coated groundwood and label it SC-A — maybe bleach the grade a little less, perhaps change the coating formulation some — but the fewer changes the better. That seems to be what Verso is doing.”
My sources tell me that Verso insists it is using proprietary technology to make SCA+ and SCA on a coated-paper machine, but at least one competitor insists that the SCA+ is actually coated. Some sources agree with Reel Time Report in questioning whether SCA+ and LWC can be made on the same machine, but one source notes that the Clarity line has the crackly sound of a supercalendered paper.
Verso has muddied the waters by making SCA on both the LWC machine and the supercalendered machines at the same mill in Sartell, MN. Both are called Clarity SCA, but the specs are different depending upon the machine. Between those differences and tweaks to the new product, printers are having fits trying to evaluate runnability and ink consumption on Clarity SCA, which many customers are eager to use because of its aggressive pricing, sources say.
Sources also tell me that AbitibiBowater has shifted some production of SCA from idled Canadian mills to its coated mill in Catawba, SC. That makes sense given the mill’s low-cost position, the strength of the Canadian dollar, and the black-liquor subsidy of American-made kraft pulp. But again it raises questions about whether the paper is really an SCA or just lightly coated.
We’re also getting reports of an SC sheet coming out of Myllykoski’s Alsip, IL, which only has a coated machine. That may stem from confusion with Myllykoski’s SC mills in the U.S. and Europe. But Myllykoski has been more reluctant than most competitors to take downtime at Alsip during this weak market, so perhaps that mill is producing some grades that are not on the official list of its products.
Catalyst Paper has also toyed with making a paper for the SCA market on its Port Alberni, BC LWC machine but has clearly told customers that the paper is coated. Sources indicate the future of that product is uncertain.
Some people would argue that none of this matters, that the issue is not how the paper is made but rather how it performs. Don’t tell that to the printers. Even the best SCA+ papers consume more ink than LWC and need different tension settings on the web. Because clay and other materials that provide gloss are embedded in the sheet rather than on the surface, as with coated paper, SC papers tend to have less surface strength and are therefore less tolerant of high-tack inks.
What is clear is that North American paper mills are battling overcapacity by using their coated paper machines to make an increasingly wide variety of uncoated papers.
See also The Rush to Make Uncoated Paper on Coated Machines.
Monday, August 10, 2009
Noisy Boise Is Reviving Its Newsprint Sales
Boise Inc.’s effort to claw its way back into the newsprint market with record low prices got off to a slow start but may finally be gaining traction.
The company’s 2nd Quarter newsprint sales declined 53% from the previous quarter and 73% from a year ago, the company revealed last week in an SEC filing. Its average net selling price dropped a whopping $154 per ton, to $434, in a single quarter.
The 3rd Quarter is looking much busier, with the larger of its two newsprint machines running mostly full and likely to stay that way through September, company officials told analysts last week. But pricing has not improved, they said.
Low newsprint prices have provided much-needed cost relief for newspaper publishers. But they are making the prospects even dimmer for some paper makers with higher-cost machines and more dependence on newsprint than Boise has.
Boise blamed the termination of a marketing agreement with AbitibiBowater, along with weak market conditions, on the poor 2nd Quarter performance.
Until late February, AbitibiBowater handled all of the newsprint sales for Boise, which mostly makes uncoated freesheet and linerboard. Boise’s anemic 2nd Quarter newsprint sales, amounting to only 28% of its capacity, suggest it lost most of its newsprint customers when it ended the marketing agreement.
Boise fought back in May with a stunning public announcement that it would sell newsprint for $430/ton, about $150 below market prices, in the five states surrounding its DeRidder, Louisiana mill. Price cuts spread like wildfire across the country as competitors scrambled to hold onto their customers, causing newsprint prices to drop more than $100 in just two months.
Boise could afford such low newsprint prices – below the cash costs of many newsprint mills – partly because its newsprint contains kraft pulp, which is subsidized by the federal government’s “black liquor” tax credits. The irony is that these supposed eco-credits are subsidizing Boise's virgin-pulp newsprint at the expense of mills that rely partly or completely on recycled fiber.
The company’s 2nd Quarter newsprint sales declined 53% from the previous quarter and 73% from a year ago, the company revealed last week in an SEC filing. Its average net selling price dropped a whopping $154 per ton, to $434, in a single quarter.
The 3rd Quarter is looking much busier, with the larger of its two newsprint machines running mostly full and likely to stay that way through September, company officials told analysts last week. But pricing has not improved, they said.
Low newsprint prices have provided much-needed cost relief for newspaper publishers. But they are making the prospects even dimmer for some paper makers with higher-cost machines and more dependence on newsprint than Boise has.
Boise blamed the termination of a marketing agreement with AbitibiBowater, along with weak market conditions, on the poor 2nd Quarter performance.
Until late February, AbitibiBowater handled all of the newsprint sales for Boise, which mostly makes uncoated freesheet and linerboard. Boise’s anemic 2nd Quarter newsprint sales, amounting to only 28% of its capacity, suggest it lost most of its newsprint customers when it ended the marketing agreement.
Boise fought back in May with a stunning public announcement that it would sell newsprint for $430/ton, about $150 below market prices, in the five states surrounding its DeRidder, Louisiana mill. Price cuts spread like wildfire across the country as competitors scrambled to hold onto their customers, causing newsprint prices to drop more than $100 in just two months.
Boise could afford such low newsprint prices – below the cash costs of many newsprint mills – partly because its newsprint contains kraft pulp, which is subsidized by the federal government’s “black liquor” tax credits. The irony is that these supposed eco-credits are subsidizing Boise's virgin-pulp newsprint at the expense of mills that rely partly or completely on recycled fiber.
Saturday, August 8, 2009
Marcal Challenges the Green-ness of Greenpeace
A journalist friend notes that an article headlined "Dog Bites Man" isn't much of a story, but that "Man Bites Dog" is big news.
Here's a true man-bites-dog story: A paper company is accusing Greenpeace of selling out by setting its standards for eco-friendly paper too low and for backing off on its efforts to protect Canada's boreal forest. This is the same Greenpeace that has used various tactics to embarrass such companies as Victoria's Secret, Sears, and AbitibiBowater over logging in the boreal.
Marcal Paper's criticism of Greenpeace comes barely a week after members of the environmental group were arrested while blocking the entrance to Quebec's Natural Resources Department to protest boreal logging.
The New Jersey-based maker of 100%-recycled toilet paper was commenting on Greenpeace's announcement Thursday that it was ending its "Kleercut" campaign against Kimberly-Clark. Greenpeace agreed to a truce because the maker of Kleenex promised that, by the end of 2011, at least 40% of its tissue fiber will be either recycled or FSC certified.
"Since when is 40 percent a passing grade?" Tim Spring, Marcal CEO, said in a statement issued yesterday. "While I understand the negotiating process, Greenpeace needs to rethink these standards. There is no excuse to make paper from anything but 100 percent recycled fiber, especially when you consider that paper takes up a quarter of our landfill space today."
"It is unnecessary to kill even a single additional tree to manufacture toilet paper, facial tissue, napkins or paper towels," Marcal's statement says.
So what happens next? Here's a hint from Greenpeace's Web site: "Did you know that K-C competitors Georgia Pacific and Procter & Gamble currently have policies that fail to protect the world’s forests?"
Here's a true man-bites-dog story: A paper company is accusing Greenpeace of selling out by setting its standards for eco-friendly paper too low and for backing off on its efforts to protect Canada's boreal forest. This is the same Greenpeace that has used various tactics to embarrass such companies as Victoria's Secret, Sears, and AbitibiBowater over logging in the boreal.
Marcal Paper's criticism of Greenpeace comes barely a week after members of the environmental group were arrested while blocking the entrance to Quebec's Natural Resources Department to protest boreal logging.
The New Jersey-based maker of 100%-recycled toilet paper was commenting on Greenpeace's announcement Thursday that it was ending its "Kleercut" campaign against Kimberly-Clark. Greenpeace agreed to a truce because the maker of Kleenex promised that, by the end of 2011, at least 40% of its tissue fiber will be either recycled or FSC certified.
"Since when is 40 percent a passing grade?" Tim Spring, Marcal CEO, said in a statement issued yesterday. "While I understand the negotiating process, Greenpeace needs to rethink these standards. There is no excuse to make paper from anything but 100 percent recycled fiber, especially when you consider that paper takes up a quarter of our landfill space today."
"It is unnecessary to kill even a single additional tree to manufacture toilet paper, facial tissue, napkins or paper towels," Marcal's statement says.
So what happens next? Here's a hint from Greenpeace's Web site: "Did you know that K-C competitors Georgia Pacific and Procter & Gamble currently have policies that fail to protect the world’s forests?"
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