A 'Salmon Week' For North American Papermakers

Pity the Pacific salmon: It expends all its energy swimming upstream, then gets screwed and dies.

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:

1. “Other industries – yeah, like ones where you can actually make a profit.”
2. “When the (black) liquor runs out, it’s time to leave the party.”
3.  “Angry customers, lots of half-idle machines, and a mountain of high-interest debt: My work here is done!”
4.  “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.

Related articles:

• 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.

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:

• 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 St. Francisville, LA coated-paper mill. That operation was a money loser even before the latest wave of reduced demand and capacity shutdowns. How can it survive now?

• Former employees of NewPage’s closed Kimberly, WI mill are mad that the company would sell the operation only to someone who would not make coated paper there. NewPage closed the high-cost mill to ease the continent's oversupply of coated paper, where it holds the #1 position. Why would anyone dream that it would undo those efforts at market stabilization by selling to a competitor at a fire-sale price?

• 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.

What should we make of these events that seem to defy the grim reality of the coated-paper business? Sappi’s move may be a matter of posturing – perhaps to wring concessions from unions at other mills, including its recently purchased Kirkniemi, Finland operation that has had recent labor strife. Or perhaps it is signaling to Congress that it will invest in U.S. paper making if the huge black-liquor subsidy is continued.

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.