Coated paper was invented in the United States, but after a major industry shakeup today most of the country's ability to make coated paper is owned by foreign companies.
This morning, two momentous events occurred nearly simultaneously in the industry that makes coated paper for catalogs, magazines, inserts, and brochures:
1) NewPage, the largest North American maker of coated paper, sold its Biron, Wisconsin and Rumford, Maine mills to Catalyst Paper, which shifted about 12% of the nation's coated-paper capacity into Canadian hands.
2) The purchase of NewPage by Verso, the continent's #2 maker of coated paper, was completed a year and a day after it was first proposed. The U.S Justice Department, fearing a combined Verso-NewPage would have too large a market share, required the sale of the two NewPage mills for the takeover to be approved.
This past summer, four U.S.-owned companies -- NewPage, Verso, Appleton, and FutureMark -- operated U.S. mills able to make about 4.8 million tons per year of the glossy paper. That was 65% of the country's coated capacity. The rest was in the hands of companies based in South Africa (SAPPI), Canada (Resolute and West Linn), Finland (UPM), and New Zealand (Evergreen).
Since then, FutureMark went out of business, Verso closed its Bucksport, Maine mill, and NewPage sold the two mills to Catalyst. That leaves two U.S. companies -- Verso and Appleton -- with coated capacity of 3.4 million tons, just under half of the country's total. The new Verso, though, is by far the largest manufacturer of coated paper in the U.S., with more than double the U.S. capacity of #2 SAPPI.
On Jan. 3, 2014, the stock price of Verso, which was seemingly on the verge of bankruptcy, was only 65 cents per share. It closed today at $3.37, an increase of 418% in barely a year.
Wisconsin-based Consolidated Paper invented coated paper in 1935, revolutionizing both the paper and magazine industries. But in recent decades, the innovations have come mostly from Western Europe and the investments have been concentrated in Asia. Even the tiny Canadian industry has out-innovated the U.S. companies, with the forerunner of Catalyst pioneering an efficient process of coating and calendering paper and Kruger building the newest machine.
Related articles:
Showing posts with label SAPPI. Show all posts
Showing posts with label SAPPI. Show all posts
Wednesday, January 7, 2015
Thursday, May 15, 2014
A Shortage of Paper? You've Got To Be Kidding!
Demand for graphic papers keeps dropping, usually faster than the industry can reduce capacity. Struggling paper mills are often playing a giant game of chicken, scuffling along on thin margins (or negative margins) in hopes that a competitor will shut down a machine to balance the market.
So why are paper companies suddenly announcing price increases for coated paper, and why is the biggest printer in the U.S. worried about possible paper shortages?
SAPPI surprised nearly everyone late last week by announcing a $40/ton price increase on coated freesheet (CFS) in the U.S. Then Verso delivered an even bigger shock this week with $40 hike not only on CFS but also on coated groundwood (CGW), which is in even greater oversupply than CFS.
But, first, let’s look at the rather cryptic statement from a recent R.R. Donnelley filing with the Securities and Exchange Commission:
“Management believes that the paper supply is consolidating, and there may be shortfalls in the future in supplies necessary to meet the demands of the entire marketplace. Higher paper prices and tight paper supplies may have an impact on customers’ demand for printed products,” the document said. “Contractual arrangements and industry practice should support the Company’s continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable the Company to successfully do so.”
What does Donnelley know that the rest of us don’t? With or without consolidation, how do you run out of something when demand for it is declining?
Donnelley seems to be worried about the proposed merger of Verso and NewPage, North America’s two largest makers of coated paper. “NewVerso" would control half the continent’s capacity for coated paper, which could stifle Donnelley’s legendary ability to negotiate very huge and very sweet deals.
The paper giant could play the “Our way or the highway card,” as NewPage has often tried to do (usually more to its own detriment than that of its customers). And it may be in a position to balance markets by aggressively idling or shutting capacity.
If the merged company is successful, smaller competitors might give up on certain parts of the market. Then a single NewVerso miscalculation – about demand or imports, for example – could quickly lead to shortages.
And if the highly leveraged company isn’t successful, Donnelley’s (and everyone else’) ability to secure coated paper could depend upon the mercurial moods of a bond market that cares nothing about the health of the paper, printing, or publishing industries.
Or maybe Donnelley is saying, “We really don’t know what consolidation of the paper industry will mean to us, but it could be a big deal. So our lawyers told us we’d better cover our donkeys in case a few know-it-all private-equity boys screw everything up.”
As for the nearer term, market participants say SAPPI’s move is a bit early and aggressive, but there is some hope that capacity reductions, the strong euro, a decent economy, and this year’s election will bring the CFS market into balance later this year. SAPPI is trying to set the table for a July 1, or maybe an Oct. 1, price hike for contract customers who have quarterly price protection.
“They’ll need others to follow and for demand to pick up for it to succeed,” one paper broker commented.
But Verso’s move on CGW seems to be more a matter of wishful thinking by a money-losing supplier. And so far it’s been met with silence by competitors. CGW faces two challenges that CFS doesn't: 1) High-quality supercalendered (SC) paper, which increasingly competes with CGW for some applications, but at a lower price. 2) The weak loonie (Canadian dollar), which means Canadian CGW and SC makers are happy to grab market share in the U.S. by pricing more aggressively than their American counterparts.
Here’s how one paper-market veteran summed up the pricing announcements: “Watch everyone announce, then [watch] the guessing game of who actually went up and who maneuvered for market share. All in all, they probably each have some bottom business they can raise, and that's who it [the price hike] will be applied to.”
Related articles:
So why are paper companies suddenly announcing price increases for coated paper, and why is the biggest printer in the U.S. worried about possible paper shortages?
SAPPI surprised nearly everyone late last week by announcing a $40/ton price increase on coated freesheet (CFS) in the U.S. Then Verso delivered an even bigger shock this week with $40 hike not only on CFS but also on coated groundwood (CGW), which is in even greater oversupply than CFS.
But, first, let’s look at the rather cryptic statement from a recent R.R. Donnelley filing with the Securities and Exchange Commission:
“Management believes that the paper supply is consolidating, and there may be shortfalls in the future in supplies necessary to meet the demands of the entire marketplace. Higher paper prices and tight paper supplies may have an impact on customers’ demand for printed products,” the document said. “Contractual arrangements and industry practice should support the Company’s continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable the Company to successfully do so.”
What does Donnelley know that the rest of us don’t? With or without consolidation, how do you run out of something when demand for it is declining?
Donnelley seems to be worried about the proposed merger of Verso and NewPage, North America’s two largest makers of coated paper. “NewVerso" would control half the continent’s capacity for coated paper, which could stifle Donnelley’s legendary ability to negotiate very huge and very sweet deals.
The paper giant could play the “Our way or the highway card,” as NewPage has often tried to do (usually more to its own detriment than that of its customers). And it may be in a position to balance markets by aggressively idling or shutting capacity.
If the merged company is successful, smaller competitors might give up on certain parts of the market. Then a single NewVerso miscalculation – about demand or imports, for example – could quickly lead to shortages.
And if the highly leveraged company isn’t successful, Donnelley’s (and everyone else’) ability to secure coated paper could depend upon the mercurial moods of a bond market that cares nothing about the health of the paper, printing, or publishing industries.
Or maybe Donnelley is saying, “We really don’t know what consolidation of the paper industry will mean to us, but it could be a big deal. So our lawyers told us we’d better cover our donkeys in case a few know-it-all private-equity boys screw everything up.”
As for the nearer term, market participants say SAPPI’s move is a bit early and aggressive, but there is some hope that capacity reductions, the strong euro, a decent economy, and this year’s election will bring the CFS market into balance later this year. SAPPI is trying to set the table for a July 1, or maybe an Oct. 1, price hike for contract customers who have quarterly price protection.
“They’ll need others to follow and for demand to pick up for it to succeed,” one paper broker commented.
But Verso’s move on CGW seems to be more a matter of wishful thinking by a money-losing supplier. And so far it’s been met with silence by competitors. CGW faces two challenges that CFS doesn't: 1) High-quality supercalendered (SC) paper, which increasingly competes with CGW for some applications, but at a lower price. 2) The weak loonie (Canadian dollar), which means Canadian CGW and SC makers are happy to grab market share in the U.S. by pricing more aggressively than their American counterparts.
Here’s how one paper-market veteran summed up the pricing announcements: “Watch everyone announce, then [watch] the guessing game of who actually went up and who maneuvered for market share. All in all, they probably each have some bottom business they can raise, and that's who it [the price hike] will be applied to.”
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
Thursday, June 30, 2011
Are Competitors Putting the Squeeze on New Page and White Birch?
When it comes to setting prices, North American paper companies have exhibited some strange behavior lately that is helping customers but making life even more uncomfortable for their most cash-strapped competitors.
Manufacturers' failure to follow through on July 1 price increases announced for newsprint and coated paper is making it harder for White Birch to exit bankruptcy protection and is pushing NewPage closer to the brink of insolvency. As noted two weeks ago in An Ominous Week for NewPage, investors have been in a dither lately over whether NewPage would be able to make a $100 million coupon payment that is due today on one of its bond issues. (It made the payment.)
The usual pattern in publication paper markets is that when one large manufacturer announces a price increase, the other mills in the same market quickly follow suit with similar increases. But that didn't happen this time around for either coated paper or newsprint.
On May 18, NewPage announced July 1 price increases of $60 per ton for everything from supercalendered paper to coated freesheet (CFS). The move by the continent's #1 maker of magazine-grade papers seemed a bit aggressive but not completely out of line considering recent capacity shutdowns and rising costs for fiber, pulp, and energy.
But Verso, #2 in the market, took some wind out of NewPage's sails a week later by announcing increases of only $30 on those types of products. NewPage had to dial back its price increases when most other manufacturers went along with Verso's pricing.
Other manufacturers except SAPPI, that is. That company, a major producer of CFS, never issued a July price announcement. As a result, even the $30 increase that most buyers had resigned themselves to was rolled back.
A similar scenario played out for newsprint. White Birch, Kruger, and Catalyst all announced a $35-per-ton increase for July, but that fell apart when giant AbitbiBowater didn’t follow suit. White Birch subsequently announced some market-related downtime at its Canadian mills, an indication that they are barely meeting their cash costs at current prices.
“If AbitibiBowater had decided to support the July price increase announcement, and had been willing to remove some supply (as needed), newsprint prices would have moved higher,” industry analyst Verle Sutton wrote in the most recent issue of his The Reel Time Report newsletter (available only by subscription). But with its low debt load, efficient mills, and greater access to relatively cheap Southern U.S. fiber, Abitibi didn’t need the price increase to go through to meet its current bills.
"What AbitibiBowater really needs is to drive out the least-efficient White Birch and Kruger newsprint capacity,” Sutton wrote.
Similarly, SAPPI is better able to forego a price increase than the heavily leveraged NewPage, which has more daunting bills due later this year than today's coupon payment.
And Verso’s majority owner, Apollo Management, has an extra incentive to kick the legs out from under NewPage: It has snatched up much of NewPage’s debt in a way that would give it significant leverage over the company if (many people say “when”, not “if”) NewPage defaults.
For more information, please read:
Manufacturers' failure to follow through on July 1 price increases announced for newsprint and coated paper is making it harder for White Birch to exit bankruptcy protection and is pushing NewPage closer to the brink of insolvency. As noted two weeks ago in An Ominous Week for NewPage, investors have been in a dither lately over whether NewPage would be able to make a $100 million coupon payment that is due today on one of its bond issues. (It made the payment.)
The usual pattern in publication paper markets is that when one large manufacturer announces a price increase, the other mills in the same market quickly follow suit with similar increases. But that didn't happen this time around for either coated paper or newsprint.
On May 18, NewPage announced July 1 price increases of $60 per ton for everything from supercalendered paper to coated freesheet (CFS). The move by the continent's #1 maker of magazine-grade papers seemed a bit aggressive but not completely out of line considering recent capacity shutdowns and rising costs for fiber, pulp, and energy.
But Verso, #2 in the market, took some wind out of NewPage's sails a week later by announcing increases of only $30 on those types of products. NewPage had to dial back its price increases when most other manufacturers went along with Verso's pricing.
Other manufacturers except SAPPI, that is. That company, a major producer of CFS, never issued a July price announcement. As a result, even the $30 increase that most buyers had resigned themselves to was rolled back.
A similar scenario played out for newsprint. White Birch, Kruger, and Catalyst all announced a $35-per-ton increase for July, but that fell apart when giant AbitbiBowater didn’t follow suit. White Birch subsequently announced some market-related downtime at its Canadian mills, an indication that they are barely meeting their cash costs at current prices.
“If AbitibiBowater had decided to support the July price increase announcement, and had been willing to remove some supply (as needed), newsprint prices would have moved higher,” industry analyst Verle Sutton wrote in the most recent issue of his The Reel Time Report newsletter (available only by subscription). But with its low debt load, efficient mills, and greater access to relatively cheap Southern U.S. fiber, Abitibi didn’t need the price increase to go through to meet its current bills.
"What AbitibiBowater really needs is to drive out the least-efficient White Birch and Kruger newsprint capacity,” Sutton wrote.
Similarly, SAPPI is better able to forego a price increase than the heavily leveraged NewPage, which has more daunting bills due later this year than today's coupon payment.
And Verso’s majority owner, Apollo Management, has an extra incentive to kick the legs out from under NewPage: It has snatched up much of NewPage’s debt in a way that would give it significant leverage over the company if (many people say “when”, not “if”) NewPage defaults.
For more information, please read:
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
Tuesday, February 16, 2010
Both Sides in Asian-Paper Debate Are Lobbying U.S. Printers
U.S. printers are hearing environmentally themed messages from both sides on the question of whether to buy Asian paper.
Ten North American environmental groups, including Greenpeace, the Sierra Club, and ForestEthics, issued a letter to various printers and paper buyers today asking them not to buy paper from Eagle Ridge Paper, claiming the merchant is a division of Asia Pulp and Paper (APP).
The letter claims that APP “is obtaining pulp and paper products from operations having adverse climate, human rights, and biodiversity impacts in Indonesia,” reports The Paper Planet. APP established Eagle Ridge as a front in the U.S., the letter adds, after APP “lost hundreds of millions of dollars in contracts” from such companies as Office Depot and Staples “because of its poor environmental and social record and its reported links to illegally obtained wood.”
Meanwhile, an APP-backed organization called Save Printer Jobs is urging U.S. printers to oppose anti-dumping penalties on coated paper from Indonesia and China. The U.S. Department of Commerce is scheduled to issue a preliminary ruling March 1on the case, which was brought by NewPage, Sappi, Appleton Coated, and the United Steelworkers union.
“A tariff on imported coated paper from China and Indonesia will hurt the U.S. printing industry” by driving up paper prices, the organization claims. “Higher costs will force many publishers to seek cheaper printing options in Canada and Mexico – or forgo printing some products all together.”
Save Printer Jobs also notes the “hypocrisy” of American mills claiming they are being hurt by government-subsidized Asian paper after the U.S. industry received about $9 billion in black liquor credits during 2009. NewPage and SAPPI received more than $400 million last year in black liquor credits, which critics claim is an abuse of a program that was intended to encourage production of new, environmentally friendly fuels.
“How can giant mills claim, with a straight face, that they are victims rather than perpetrators of market distortion?” Save Printer Jobs asks. “The giant mills and their hedge fund backers won’t give the taxpayers back their money from 2009, but it is not too late to stop their effort to slap an unwarranted tariff on imported paper that will raise costs for the printing industry and eventually drive U.S. printing jobs overseas.”
Some of the 10 organizations involved in today’s letter about Eagle Ridge have also opposed U.S. subsidies for black liquor, a pulp byproduct commonly used as a power source by pulp mills.
Related articles:
Ten North American environmental groups, including Greenpeace, the Sierra Club, and ForestEthics, issued a letter to various printers and paper buyers today asking them not to buy paper from Eagle Ridge Paper, claiming the merchant is a division of Asia Pulp and Paper (APP).
The letter claims that APP “is obtaining pulp and paper products from operations having adverse climate, human rights, and biodiversity impacts in Indonesia,” reports The Paper Planet. APP established Eagle Ridge as a front in the U.S., the letter adds, after APP “lost hundreds of millions of dollars in contracts” from such companies as Office Depot and Staples “because of its poor environmental and social record and its reported links to illegally obtained wood.”
Meanwhile, an APP-backed organization called Save Printer Jobs is urging U.S. printers to oppose anti-dumping penalties on coated paper from Indonesia and China. The U.S. Department of Commerce is scheduled to issue a preliminary ruling March 1on the case, which was brought by NewPage, Sappi, Appleton Coated, and the United Steelworkers union.
“A tariff on imported coated paper from China and Indonesia will hurt the U.S. printing industry” by driving up paper prices, the organization claims. “Higher costs will force many publishers to seek cheaper printing options in Canada and Mexico – or forgo printing some products all together.”
Save Printer Jobs also notes the “hypocrisy” of American mills claiming they are being hurt by government-subsidized Asian paper after the U.S. industry received about $9 billion in black liquor credits during 2009. NewPage and SAPPI received more than $400 million last year in black liquor credits, which critics claim is an abuse of a program that was intended to encourage production of new, environmentally friendly fuels.
“How can giant mills claim, with a straight face, that they are victims rather than perpetrators of market distortion?” Save Printer Jobs asks. “The giant mills and their hedge fund backers won’t give the taxpayers back their money from 2009, but it is not too late to stop their effort to slap an unwarranted tariff on imported paper that will raise costs for the printing industry and eventually drive U.S. printing jobs overseas.”
Some of the 10 organizations involved in today’s letter about Eagle Ridge have also opposed U.S. subsidies for black liquor, a pulp byproduct commonly used as a power source by pulp mills.
Related articles:
- Subsidized U.S. Mills Fight Back Against Subsidized, Cross-Dressing Coated Papers discusses the original filing of the antidumping case.
- Illegal Logging in Indonesia: Not Funny describes Indonesia's destructive forestry practices.
- Black Liquor Scorecard: $4.7 Billion Through September details what 21 publicly traded companies received in black liquor credits through the 3rd Quarter. Some of the companies have not reported 4th Quarter numbers yet.
Wednesday, September 23, 2009
Subsidized U.S. Mills Fight Back Against Subsidized, Cross-Dressing Coated Papers
Two paper companies benefiting from multimillion-dollar U.S. government subsidies went on the attack today against subsidized coated paper from China and Indonesia.
NewPage and SAPPI, along with Appleton Coated, announced that they have filed "antidumping and countervailing duty petitions" covering imports of paper for sheetfed presses "having a GE brightness of at least 80."
"Under the antidumping and countervailing duty statutes, the International Trade Commission is expected to make a preliminary injury determination in November 2009 and the Department of Commerce is expected to issue preliminary determinations in the countervailing duty and antidumping duty cases in December 2009 and March 2010, respectively," the statement says. It says that relevant imports of coated paper increased 40% in the first half of 2009 versus the first half of the previous year even though shipments by U.S. mills declined about 38%.
NewPage led a previously successful antidumping effort against coated-freesheet paper coming from Asia, but some Chinese and Indonesian mills have skirted the resulting tariffs by including enough mechanical pulp in their papers to have them classified as coated groundwood rather than coated freesheet. The more generic "GE brightness of at least 80" is obviously intended to close the loophole for such coated-groundwood papers cross-dressing as coated freesheet.
Through the second quarter, NewPage had received $120 million and SAPPI $37 million this year in "black-liquor" tax credits from the federal government. The amounts are likely to double before the program expires at the end of this year. The credits are a sort of accidental subsidy of kraft pulp, the main ingredient in high-brightness coated papers. Appleton Coated is apparently not eligible for the credits.
To be fair, the black-liquor program is temporary, while the Indonesian and Chinese competitors are allegedly receiving more permanent government help in a variety of ways -- tax subsidies, input subsidies, cheap timber, loans, grants, etc.
The statement makes several references to environmental practices, sustainability, and the like. But it makes no direct mention of Indonesia being the international poster child for rape-and-pillage forestry or of the questionable environmental practices of some Chinese paper mills.
NewPage and SAPPI, along with Appleton Coated, announced that they have filed "antidumping and countervailing duty petitions" covering imports of paper for sheetfed presses "having a GE brightness of at least 80."
"Under the antidumping and countervailing duty statutes, the International Trade Commission is expected to make a preliminary injury determination in November 2009 and the Department of Commerce is expected to issue preliminary determinations in the countervailing duty and antidumping duty cases in December 2009 and March 2010, respectively," the statement says. It says that relevant imports of coated paper increased 40% in the first half of 2009 versus the first half of the previous year even though shipments by U.S. mills declined about 38%.
NewPage led a previously successful antidumping effort against coated-freesheet paper coming from Asia, but some Chinese and Indonesian mills have skirted the resulting tariffs by including enough mechanical pulp in their papers to have them classified as coated groundwood rather than coated freesheet. The more generic "GE brightness of at least 80" is obviously intended to close the loophole for such coated-groundwood papers cross-dressing as coated freesheet.
Through the second quarter, NewPage had received $120 million and SAPPI $37 million this year in "black-liquor" tax credits from the federal government. The amounts are likely to double before the program expires at the end of this year. The credits are a sort of accidental subsidy of kraft pulp, the main ingredient in high-brightness coated papers. Appleton Coated is apparently not eligible for the credits.
To be fair, the black-liquor program is temporary, while the Indonesian and Chinese competitors are allegedly receiving more permanent government help in a variety of ways -- tax subsidies, input subsidies, cheap timber, loans, grants, etc.
The statement makes several references to environmental practices, sustainability, and the like. But it makes no direct mention of Indonesia being the international poster child for rape-and-pillage forestry or of the questionable environmental practices of some Chinese paper mills.
Thursday, August 13, 2009
Black Liquor Credits Top $3 Billion So Far
Pulp and paper mills in the United States earned more than $3 billion in controversial "black liquor" credits during the first half of this year, a Dead Tree Edition analysis shows.
The companies are on pace to earn even more in "alternative fuels tax credits" during the second half of the year if the federal program is not terminated prematurely. The program expires at the end of the year, but the Obama Administration and some members of Congress want to end it early. A few Congress members have advocated some sort of extension.
Twenty-one companies that operate kraft-pulp mills reported to the U.S. Securities and Exchange Commission that they earned or received$2.86 billion from the federal "alternative fuels tax credit" in the first and second quarters.
That doesn't include at least 11 other privately held pulp makers that do not file reports with the SEC. One of those private companies, Georgia-Pacific, manufactures enough pulp to earn well over $200 million per quarter in black liquor credits, according to Equity Research Associates.
The alternative-energy program was originally intended to subsidize the use of bio-fuels to replace petroleum fuels. But International Paper set off a feeding frenzy among pulp makers early this year when it revealed that, by mixing some diesel fuel with the black liquor used to power its kraft mills, it had qualified for the program. Black liquor is a byproduct of the kraft process that pulp mills around the world have been using as an energy source for decades.
For more background on the tax credits, please see "Black Liquor" Credits Are Helping Paper Buyers and Boozing It Up on Black Liquor: One Company's High Is Another's Hangover.
IP, the largest kraft producer in the U.S., has already earned just over $1 billion from the program, it reported to the SEC.
Most other publicly traded pulp makers were late to the liquor party. Many started blending diesel with black liquor in mid- to late January, but Weyerhaeuser and SAPPI apparently didn't start until the 2nd Quarter. Now that all of the eligible public companies have qualified for the program, they seem to be on pace to earn at least $1.6 billion in both the 3rd and 4th quarters.
Accounting for the credits varies among the public companies. Some recognized only the payments they had received from the Internal Revenue Service, while most seem also to have booked credits that were earned but not yet in hand. Some reported the amount of credits they had earned, while others first backed out related expenses.
Here are the credits earned from January to June, as best as I can interpret from the SEC reports:
The companies are on pace to earn even more in "alternative fuels tax credits" during the second half of the year if the federal program is not terminated prematurely. The program expires at the end of the year, but the Obama Administration and some members of Congress want to end it early. A few Congress members have advocated some sort of extension.
Twenty-one companies that operate kraft-pulp mills reported to the U.S. Securities and Exchange Commission that they earned or received$2.86 billion from the federal "alternative fuels tax credit" in the first and second quarters.
That doesn't include at least 11 other privately held pulp makers that do not file reports with the SEC. One of those private companies, Georgia-Pacific, manufactures enough pulp to earn well over $200 million per quarter in black liquor credits, according to Equity Research Associates.
The alternative-energy program was originally intended to subsidize the use of bio-fuels to replace petroleum fuels. But International Paper set off a feeding frenzy among pulp makers early this year when it revealed that, by mixing some diesel fuel with the black liquor used to power its kraft mills, it had qualified for the program. Black liquor is a byproduct of the kraft process that pulp mills around the world have been using as an energy source for decades.
For more background on the tax credits, please see "Black Liquor" Credits Are Helping Paper Buyers and Boozing It Up on Black Liquor: One Company's High Is Another's Hangover.
IP, the largest kraft producer in the U.S., has already earned just over $1 billion from the program, it reported to the SEC.
Most other publicly traded pulp makers were late to the liquor party. Many started blending diesel with black liquor in mid- to late January, but Weyerhaeuser and SAPPI apparently didn't start until the 2nd Quarter. Now that all of the eligible public companies have qualified for the program, they seem to be on pace to earn at least $1.6 billion in both the 3rd and 4th quarters.
Accounting for the credits varies among the public companies. Some recognized only the payments they had received from the Internal Revenue Service, while most seem also to have booked credits that were earned but not yet in hand. Some reported the amount of credits they had earned, while others first backed out related expenses.
Here are the credits earned from January to June, as best as I can interpret from the SEC reports:
- International Paper: $1.022 billion
- Smurfit-Stone Container: $294 million
- Domtar; $183 million
- MeadWestvaco: $180 million
- Verso Paper: $144 million
- NewPage: $120 million
- AbitibiBowater: $118 million
- Weyerhaeuser: $107 million
- Rayonier $92 million
- Packaging Corporation of America: $81 million
- Boise: $79 million
- Temple-Inland: $79 million
- Clearwater Paper: $76 million
- Kapstone Paper & Packaging: $70 million
- Graphic Packaging; $62 million
- P.H. Glatfelter: $43 million
- SAPPI: $37 million
- Rock-Tenn: $34 million
- Buckeye Technologies: $25 million
- Appleton Papers: $8 million
- Wausau $6 million
Saturday, August 1, 2009
Coated Paper Prices: Can They Get Uglier?
The rapid decrease in prices for coated paper the past few months caught nearly everyone by surprise. Now the question is whether the drop is over.
Just four months ago, Dead Tree Edition conducted a poll asking readers to predict where the RISI index for 40# coated #5 would be in July. Only 29% said it would be less than $820 per ton ($41/cwt.) RISI itself was predicting that the index, then at $900, would bottom out at $845 in the 3rd Quarter.
RISI revealed its July numbers yesterday, showing that it and most of our readers were way off the mark The index was at $770.
The market had become accustomed to coated mills, especially market leader NewPage, closing machines or even entire mills to bolster pricing amid falling demand. But by spring, most of the obvious North American candidates for mothballing were gone. That left large, efficient machines able to produce more coated paper than North America needs.
The mills battled back with down time, making uncoated products on coated machines, and winning business from offshore mills. But it still wasn't enough, as many customers caught short by the rapid decrease in their own consumption simply stopped buying for awhile and used their inventories instead.
Some people argue that prices will start rising because the mills are hurting so bad. By that logic, magazines will see their ad pages start bouncing back and the Postal Service can stop worrying about the loss of First Class Mail. Wishes don't always come true. In fact, mills that are struggling to stay afloat are more tempted to drop their prices rather than idle their machines -- unless the prices no longer cover their cash costs.
With the Canadian dollar, energy costs, and pricing for market pulp all rising, paper prices may be nearing cash costs for some mills. In fact, Kruger recently announced the permanent shutdown of the small coated machines at Trois-Rivieres, Quebec. But most North American coated paper is made at U.S. mills by companies like NewPage, Verso, SAPPI, and AbitibiBowater that have their own kraft mills that for now are heavily subsidized by the federal government.
StoraEnso, which owns one-fifth of NewPage, isn't counting on a rebound any time soon. It recently wrote down that investment, citing "poor prospects of an upturn in the [North American] market."
Perhaps the paper market is like the U.S. economy, where GDP sank by "only" 1.5% in the 2nd Quarter versus 6.4% in the 1st Quarter: The paper market may not be improving, but it's probably getting "less bad" than it was in the spring.
Just four months ago, Dead Tree Edition conducted a poll asking readers to predict where the RISI index for 40# coated #5 would be in July. Only 29% said it would be less than $820 per ton ($41/cwt.) RISI itself was predicting that the index, then at $900, would bottom out at $845 in the 3rd Quarter.
RISI revealed its July numbers yesterday, showing that it and most of our readers were way off the mark The index was at $770.
The market had become accustomed to coated mills, especially market leader NewPage, closing machines or even entire mills to bolster pricing amid falling demand. But by spring, most of the obvious North American candidates for mothballing were gone. That left large, efficient machines able to produce more coated paper than North America needs.
The mills battled back with down time, making uncoated products on coated machines, and winning business from offshore mills. But it still wasn't enough, as many customers caught short by the rapid decrease in their own consumption simply stopped buying for awhile and used their inventories instead.
Some people argue that prices will start rising because the mills are hurting so bad. By that logic, magazines will see their ad pages start bouncing back and the Postal Service can stop worrying about the loss of First Class Mail. Wishes don't always come true. In fact, mills that are struggling to stay afloat are more tempted to drop their prices rather than idle their machines -- unless the prices no longer cover their cash costs.
With the Canadian dollar, energy costs, and pricing for market pulp all rising, paper prices may be nearing cash costs for some mills. In fact, Kruger recently announced the permanent shutdown of the small coated machines at Trois-Rivieres, Quebec. But most North American coated paper is made at U.S. mills by companies like NewPage, Verso, SAPPI, and AbitibiBowater that have their own kraft mills that for now are heavily subsidized by the federal government.
StoraEnso, which owns one-fifth of NewPage, isn't counting on a rebound any time soon. It recently wrote down that investment, citing "poor prospects of an upturn in the [North American] market."
Perhaps the paper market is like the U.S. economy, where GDP sank by "only" 1.5% in the 2nd Quarter versus 6.4% in the 1st Quarter: The paper market may not be improving, but it's probably getting "less bad" than it was in the spring.
Saturday, May 9, 2009
It's Silly Season for the Paper Industry
Has the North American paper industry gone completely bonkers this spring? (Not that it was ever a particularly sane industry).
AbitibiBowater kicked off the strange doings last month when it revealed to a bankruptcy court that it owes $62 million to the Finance Authority of Maine. How did that happen? The company has no operations in Maine.
But the silliness was really concentrated in the coated portion of the industry, where demand dropped a record 32% in the first quarter versus last year and shows no signs of bouncing back. In light of that sorry state of affairs, consider the following recent headlines:
Kirkniemi , Finland U.S.
The new owners of St. Francisville may also be grabbing for those credits by just reopening the pulp mill. And perhaps they will convert the mill to make some other product, such as linerboard or biofuels. It’s hard to envision 60# coated #3 being made again at the high-cost mill.
The Kimberly workers? They were obviously not able to read the writing on the wall that the plant had been in bad shape for nearly a decade -- or that, unlike previous owners (Repap, Consolidated, StoraEnso), NewPage tends to euthanize terminal cases, not put Band-Aids on them.
And don't ask me to explain the logic behind the federal government paying perhaps billions of dollars this year in alternative-energy credits to Verso and other U.S. companies for using black liquor as fuel -- something kraft pulp mills around the world have been doing for decades. There is no logic.
AbitibiBowater kicked off the strange doings last month when it revealed to a bankruptcy court that it owes $62 million to the Finance Authority of Maine. How did that happen? The company has no operations in Maine.
But the silliness was really concentrated in the coated portion of the industry, where demand dropped a record 32% in the first quarter versus last year and shows no signs of bouncing back. In light of that sorry state of affairs, consider the following recent headlines:
- Sappi filed plans with the state of Minnesota to build a huge coated-paper machine at its Cloquet mill. If press reports are to be believed, the machine would have capacity to make about 700,000 tons per year, nearly double that of any competing machine on the continent. This is the same Sappi that just reported a quarterly loss and said it expects to idle even more machines because of declining demand.
- An investment group announced it is spending $62 million to buy and upgrade Tembec’s shuttered
- Former employees of NewPage’s closed
- Capping off the silliness was Verso's revelation Thursday that the federal government paid it nearly $105 million last quarter in "black-liquor" credits. During most of the quarter, the company's stock was worth less than half that amount.
The new owners of St. Francisville may also be grabbing for those credits by just reopening the pulp mill. And perhaps they will convert the mill to make some other product, such as linerboard or biofuels. It’s hard to envision 60# coated #3 being made again at the high-cost mill.
The Kimberly workers? They were obviously not able to read the writing on the wall that the plant had been in bad shape for nearly a decade -- or that, unlike previous owners (Repap, Consolidated, StoraEnso), NewPage tends to euthanize terminal cases, not put Band-Aids on them.
And don't ask me to explain the logic behind the federal government paying perhaps billions of dollars this year in alternative-energy credits to Verso and other U.S. companies for using black liquor as fuel -- something kraft pulp mills around the world have been doing for decades. There is no logic.
Thursday, May 7, 2009
NewPage and Verso Kiss and Make Up
North America’s two coated-paper giants have decided to stop fighting about who has the right to make high-bulk coated-groundwood papers.
Verso Paper revealed today that NewPage had granted it the right to use a NewPage patent for making high-bulk lightweight-coated (LWC) paper. The legal brouhaha started last summer when NewPage sent Verso a cease-and-desist letter claiming patent infringement and demanding that Verso stop selling its entire line of coated #5 papers.
Verso responded with a lawsuit asking a federal court to declare that it was not breaching the eight-year-old patent that had been issued to a predecessor of NewPage, Consolidated Paper. Verso and NewPage settled out of court in January.
“As part of the settlement, NewPage granted the Company an irrevocable, perpetual, nonexclusive, worldwide, royalty-free, and fully paid-up right and license for any and all purposes under the NewPage patent and any continuation, division, reissue or non-U.S. counterpart of the patent,” Verso stated in a filing today with the Securities and Exchange Commission.
The patent addressed the issue of how to bulk up offset LWC without sacrificing too much gloss (at least 40 on the TAPPI scale). For the most part, the patented method relied on tactics that are widely used among paper mills to bulk up paper – e.g. lower pressure in the supercalenders, use of a gap former, more groundwood pulp, and less coating. A more unusual feature of the patent’s recipe is the use of expensive plastic pigments in the coating “to provide increased stiffness and good gloss."
The patent apparently grew out of requests from publishers of weekly magazines, especially Time Inc., to help them save money on postage by supplying lighter paper without sacrificing bulk or quality. During the past decade, Time Inc., a major customer of both NewPage and Verso, has switched most of its weekly magazines from 32# LWC to 30#, to 28#, back to 30#, and recently to 29# -- at times roiling the entire North American LWC market because of its huge position.
With the settlement, Verso can go about its business as usual, and NewPage has no immediate worries about its patent being declared invalid. But that leaves them two other problems: customers and technology.
Ratebase cuts, shifts to supercalendered paper, and reductions in ad pages have resulted in weekly magazines buying far less high-bulk LWC than they did a few years ago.
And the combination of film coating with online "hot/soft" calendering has proven to be the easiest way to make high-bulk LWC with moderate gloss. Film-coated papers from such mills as Kruger, Catalyst, and SAPPI are often bulkier than the high-bulk sheets coming from companies like NewPage and Verso, which rely on an older, more expensive technology -- blade coating followed by offline supercalendering.
Verso Paper revealed today that NewPage had granted it the right to use a NewPage patent for making high-bulk lightweight-coated (LWC) paper. The legal brouhaha started last summer when NewPage sent Verso a cease-and-desist letter claiming patent infringement and demanding that Verso stop selling its entire line of coated #5 papers.
Verso responded with a lawsuit asking a federal court to declare that it was not breaching the eight-year-old patent that had been issued to a predecessor of NewPage, Consolidated Paper. Verso and NewPage settled out of court in January.
“As part of the settlement, NewPage granted the Company an irrevocable, perpetual, nonexclusive, worldwide, royalty-free, and fully paid-up right and license for any and all purposes under the NewPage patent and any continuation, division, reissue or non-U.S. counterpart of the patent,” Verso stated in a filing today with the Securities and Exchange Commission.
The patent addressed the issue of how to bulk up offset LWC without sacrificing too much gloss (at least 40 on the TAPPI scale). For the most part, the patented method relied on tactics that are widely used among paper mills to bulk up paper – e.g. lower pressure in the supercalenders, use of a gap former, more groundwood pulp, and less coating. A more unusual feature of the patent’s recipe is the use of expensive plastic pigments in the coating “to provide increased stiffness and good gloss."
The patent apparently grew out of requests from publishers of weekly magazines, especially Time Inc., to help them save money on postage by supplying lighter paper without sacrificing bulk or quality. During the past decade, Time Inc., a major customer of both NewPage and Verso, has switched most of its weekly magazines from 32# LWC to 30#, to 28#, back to 30#, and recently to 29# -- at times roiling the entire North American LWC market because of its huge position.
With the settlement, Verso can go about its business as usual, and NewPage has no immediate worries about its patent being declared invalid. But that leaves them two other problems: customers and technology.
Ratebase cuts, shifts to supercalendered paper, and reductions in ad pages have resulted in weekly magazines buying far less high-bulk LWC than they did a few years ago.
And the combination of film coating with online "hot/soft" calendering has proven to be the easiest way to make high-bulk LWC with moderate gloss. Film-coated papers from such mills as Kruger, Catalyst, and SAPPI are often bulkier than the high-bulk sheets coming from companies like NewPage and Verso, which rely on an older, more expensive technology -- blade coating followed by offline supercalendering.
Saturday, December 6, 2008
Losing the Name Game
What idiot is in charge of picking the brand names for publication papers?
We noted yesterday the passing of the AbiBow Eco Gloss brand name that was created by the moniker-challenged AbitibiBowater. (Repeat either the brand name or the company name 10 times very quickly.)
SAPPI has supposedly given up on its Belgrade brand name. There is no truth to the rumor that it had considered coming out with a series of other brands named after the world’s bleakest places, such as Mogadishu Matte, Chernobyl Chrome, and Auschwitz Satin.
Catalyst had a pretty good LWC name in Pacifica Gloss, but then the Freudians in the marketing department changed it to Electracote. To become gender neutral, will Catalyst call its new coated #4 product Oedipuscote?
Myllykoski has tried to get hip to the Me Generation by naming everything MY something – MY GOLD, MY PLUS, MY SYMMETRY, MY BRITE, and so on. MY GOD, enough is enough!
Even the environmentalists pestering some paper companies have trouble with names. Remember Candace the Caribou (right), the character ForestEthics created to protest that logging in Canada’s boreal forest was destroying caribou habitat? The effort was targeted at American consumers, who responded, “What’s a caribou?” Answer: the Canadian word for reindeer.
Now if Greenpeace had created Rudolph the Homeless Reindeer and shown him pushing a shopping cart full of stuff, maybe we would have gotten the message.
We noted yesterday the passing of the AbiBow Eco Gloss brand name that was created by the moniker-challenged AbitibiBowater. (Repeat either the brand name or the company name 10 times very quickly.)
SAPPI has supposedly given up on its Belgrade brand name. There is no truth to the rumor that it had considered coming out with a series of other brands named after the world’s bleakest places, such as Mogadishu Matte, Chernobyl Chrome, and Auschwitz Satin.
Catalyst had a pretty good LWC name in Pacifica Gloss, but then the Freudians in the marketing department changed it to Electracote. To become gender neutral, will Catalyst call its new coated #4 product Oedipuscote?
Myllykoski has tried to get hip to the Me Generation by naming everything MY something – MY GOLD, MY PLUS, MY SYMMETRY, MY BRITE, and so on. MY GOD, enough is enough!
Even the environmentalists pestering some paper companies have trouble with names. Remember Candace the Caribou (right), the character ForestEthics created to protest that logging in Canada’s boreal forest was destroying caribou habitat? The effort was targeted at American consumers, who responded, “What’s a caribou?” Answer: the Canadian word for reindeer.
Now if Greenpeace had created Rudolph the Homeless Reindeer and shown him pushing a shopping cart full of stuff, maybe we would have gotten the message.
Sunday, October 19, 2008
More on Maine and FSC
More details have come to us about the subject of "Does FSC certification help the earth?" (http://deadtreeedition.blogspot.com/2008/10/does-fsc-certification-help-earth.html). That describes the effort to have numerous small forestry operators in Maine receive Forest Stewardship Council certification without changing their forestry practices.
Three big makers of coated paper with mills in Maine -- NewPage, SAPPI, and Verso -- are sponsoring the effort, which is known as "landscape certification."
A Verso "Sustainability Report" says "we worked with government, environmental non-governmental organizations (ENGOs), customers and other interested stakeholders to explore opportunities to make certification of forestlands more accessible and affordable to small, private landowners. This effort, which includes identifying and evaluating landscape-scale information that can be used to satisfy the group compliance criteria of forest certification standards, will continue in 2008 with an ultimate objective of certifying 3 million new acres of forestland in the state to achieve the governor’s target of 10 million acres certified in Maine."
Three big makers of coated paper with mills in Maine -- NewPage, SAPPI, and Verso -- are sponsoring the effort, which is known as "landscape certification."
A Verso "Sustainability Report" says "we worked with government, environmental non-governmental organizations (ENGOs), customers and other interested stakeholders to explore opportunities to make certification of forestlands more accessible and affordable to small, private landowners. This effort, which includes identifying and evaluating landscape-scale information that can be used to satisfy the group compliance criteria of forest certification standards, will continue in 2008 with an ultimate objective of certifying 3 million new acres of forestland in the state to achieve the governor’s target of 10 million acres certified in Maine."
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