With a name like "International Paper", you would think the company made its money from selling paper.
Nope. Once again in the 3rd Quarter, IP got far more money from Uncle Sam in the form of black-liquor credits than it made from selling actual products. The company booked $525 million in such credits during the quarter, versus $233 million in pre-tax earnings before special items, the company announced today.
The giant paper and packaging company has received $1.547 billion in black-liquor credits this year for producing and using more than 3 billion gallons of the energy-rich pulp byproduct. Again, that is far more than it earned from normal operations, which have been hampered by the recession. IP is on pace to surpass the $2 billion mark in black-liquor credits before the controversial program expires at the end of this year.
The credits grew out of highway legislation intended to encourage production of motor fuels that contain a mix of petroleum and plant-derived substances. IP learned late last year that, if it added a bit of diesel (at least 0.1% by volume) to the black liquor typically used to power kraft-pulp mills, the mixture could qualify for "alternative fuel mixture credits".
As word got out of the loophole IP was exploiting, at least 19 other publicly traded pulp and paper companies began jumping on the bandwagon. Public companies qualified for about $2.8 billion in black-liquor credits during the first half of this year, and hundreds of millions more no doubt went to private companies. (See Black Liquor Credits Top $3 Billion So Far .) IP is one of the first pulp producers to reveal details of its 3rd Quarter credits.
Having nearly three times more kraft-pulp capacity than any other company in the U.S., IP is the biggest beneficiary of the tax loophole. It is averaging an estimated $187 in black-liquor credits per ton of kraft-pulp capacity. Kraft pulp sells on the open market in the range of $650 to $800 ton, depending upon the grade.
IP executives put the kibbosh today on speculation about huge "Son of Black Liquor" credits, formally known as cellulosic ethanol tax credits, going to the company.
"We believe that pulp & paper producers do not qualify," a company presentation said. The IRS recently ruled that black liquor meets the definition of biofuel necessary to receive the credits, but the substance would also have to pass muster with the Environmental Protection Agency for the latter program. (See Will the EPA Stop 'Son of Black Liquor'?)
A good news/bad news joke is making the rounds of papermakers: The good news is that, at the next paper-industry convention, liquor will be half-priced because the bar is taking advantage of special government incentives. The bad news is that, to qualfiy for the program, bartenders will have to add a dash of diesel to the drinks.
Wednesday, October 28, 2009
Tuesday, October 27, 2009
Coated Paper Market: Been Down So Long This Looks Like Up
North American coated paper mills were generally busier in September than August, but that ain’t saying much.
Despite various announcements of price increases on coated freesheet and high-brightness coated groundwood papers, the unanimous word from the trenches is that no prices are moving up except perhaps for some really low-ball spot business.
The best that can be said is that the market seems to have stablized this fall after months of plummeting prices. North American shipments of coated paper were up in September versus the previous month – 8% for coated freesheet and 5% for coated groundwood, according to the Pulp and Paper Products Council. But compared with September 2008, shipments declined 15% and 8%, respectively.
Actual consumption of coated papers in the U.S., was even less favorable, according to data from printers compiled by Idealliance. September consumption of coated was down more than 5% versus the previous month. Usage of coated freesheet was down a whopping 32% versus September 2008, while coated groundwood dropped “only” 23%.
Consumption of uncoated groundwood held its own versus August and was actually up versus the same month last year for the fifth month in a row, according to Idealliance.
To keep their coated machines busy amidst the declining demand for coated papers, several companies have recently begun making supercalendered and other uncoated-groundwood papers on machines that have coaters. (See, for example, The Rush to Make Uncoated Paper on Coated Machines and There's Little Clarity About Some SCA Papers.)
The new supply continues to place pressure on uncoated-groundwood prices, which seem to be continuing a downward drift.
Though coated-freesheet prices are at their lowest in more than two years, there was speculation a few months ago that they could crash even more. The black-liquor credits subsidizing U.S. kraft-pulp mills to the tune of about $200 per ton threatened to make freesheet papers a virtual byproduct of the kraft process, with the resulting glut continuing to drive paper prices until the credits expire at the end of this year. (See "Black Liquor" Credits Are Helping Paper Buyers.)
But the surprising recent strength of global pulp markets, which by some accounts are experiencing their strongest rebound in history, has provided an outlet for all that subsidized U.S. pulp. And the weakening U.S. dollar has discouraged imports of paper into the U.S. from overseas.
Coated prices seem unlikely to move much for the remainder of the year. And what about next year?
Some paper-company executives claim that prices “must” go up because the black-liquor credits that have kept them solvent will disappear.
But a need for higher prices does not translate into higher prices. (Exhibit A: rates for magazine advertising). And bankruptcy reorganizations of major players don’t necessarily stabilize prices (Exhibit B: the newsprint market this year). Prices won't move up significantly until demand recovers significantly, which seems unlikely in 2010, or more machines are closed.
Despite various announcements of price increases on coated freesheet and high-brightness coated groundwood papers, the unanimous word from the trenches is that no prices are moving up except perhaps for some really low-ball spot business.
The best that can be said is that the market seems to have stablized this fall after months of plummeting prices. North American shipments of coated paper were up in September versus the previous month – 8% for coated freesheet and 5% for coated groundwood, according to the Pulp and Paper Products Council. But compared with September 2008, shipments declined 15% and 8%, respectively.
Actual consumption of coated papers in the U.S., was even less favorable, according to data from printers compiled by Idealliance. September consumption of coated was down more than 5% versus the previous month. Usage of coated freesheet was down a whopping 32% versus September 2008, while coated groundwood dropped “only” 23%.
Consumption of uncoated groundwood held its own versus August and was actually up versus the same month last year for the fifth month in a row, according to Idealliance.
To keep their coated machines busy amidst the declining demand for coated papers, several companies have recently begun making supercalendered and other uncoated-groundwood papers on machines that have coaters. (See, for example, The Rush to Make Uncoated Paper on Coated Machines and There's Little Clarity About Some SCA Papers.)
The new supply continues to place pressure on uncoated-groundwood prices, which seem to be continuing a downward drift.
Though coated-freesheet prices are at their lowest in more than two years, there was speculation a few months ago that they could crash even more. The black-liquor credits subsidizing U.S. kraft-pulp mills to the tune of about $200 per ton threatened to make freesheet papers a virtual byproduct of the kraft process, with the resulting glut continuing to drive paper prices until the credits expire at the end of this year. (See "Black Liquor" Credits Are Helping Paper Buyers.)
But the surprising recent strength of global pulp markets, which by some accounts are experiencing their strongest rebound in history, has provided an outlet for all that subsidized U.S. pulp. And the weakening U.S. dollar has discouraged imports of paper into the U.S. from overseas.
Coated prices seem unlikely to move much for the remainder of the year. And what about next year?
Some paper-company executives claim that prices “must” go up because the black-liquor credits that have kept them solvent will disappear.
But a need for higher prices does not translate into higher prices. (Exhibit A: rates for magazine advertising). And bankruptcy reorganizations of major players don’t necessarily stabilize prices (Exhibit B: the newsprint market this year). Prices won't move up significantly until demand recovers significantly, which seems unlikely in 2010, or more machines are closed.
Saturday, October 24, 2009
What Nasty Chemicals Are Lurking in Your Paper?
Almost all discussions about the environmental friendliness of papers focus on the fiber, but perhaps we should pay more attention to the non-fiber ingredients.
The new controversy about cash-register receipts and the emergence of “biolatex” underscore the growing concern about the chemicals that papers contain.
ScienceNews revealed recently that many carbonless copy papers, which are typically used for cash-register and credit-card receipts, contain high levels of bisphenol-A (BPA). Research showing that the estrogen-mimicking chemical was leaching out of plastic bottles has led to calls for tighter regulation, but ScienceNews quotes a researcher who says the BPA exposure from carbonless copy papers is far greater.
Meanwhile, the folks at Better Paper, an environmental-advocacy organization, are touting the benefits of a new corn-derived biolatex known as EcoSphere as a replacement for traditional petroleum-derived latex in coated paper.
“Several major paper manufacturers are already testing EcoSphere® biolatex™ binder in their coating formulations,” writes Jeff van Leeuwen of EcoSynthetix, which manufactures the product, at Better Paper's blog. As far as I know, none of the paper makers have gone public with their use of EcoSphere.
The product has a lower carbon footprint, is friendlier to recycling operations, and costs less than traditional latex, the company claims. It’s also biodegradable.
Other chemicals that are frequently used in papers include various plastics, titanium dioxide, and calcium carbonates.
Calcium carbonates are a mixed bag environmentally. Some people have promoted rock-based papers (which are mostly limestone-derived calcium carbonates) as being green because they are "tree free". And precipitated calcium carbonate (PCC) is sometimes considered a “carbon sink” because it is produced by combining carbon-dioxide emissions with lime.
But limestone doesn’t exactly grow on trees; it has to be mined. And its transformation into lime for shipment to PCC plants doesn’t exactly sound like an environmentally sustainable enterprise.
Then there’s bleach, which is commonly used to brighten papers but is also really good at killing just about everything. That leads me to Stupid Question #1: When you use white toilet paper, are you putting bleach on your derriere?
And that leads me to Stupid Question #2: Why do we insist on having such white toilet paper – or, for that matter, TP that’s been dyed, decorated, or perfumed? Do you really want those chemicals, how shall we say, traveling to Uranus? Or dumped into the sewer system?
Please see the following articles for more information about the environmental implications of:
The new controversy about cash-register receipts and the emergence of “biolatex” underscore the growing concern about the chemicals that papers contain.
ScienceNews revealed recently that many carbonless copy papers, which are typically used for cash-register and credit-card receipts, contain high levels of bisphenol-A (BPA). Research showing that the estrogen-mimicking chemical was leaching out of plastic bottles has led to calls for tighter regulation, but ScienceNews quotes a researcher who says the BPA exposure from carbonless copy papers is far greater.
Meanwhile, the folks at Better Paper, an environmental-advocacy organization, are touting the benefits of a new corn-derived biolatex known as EcoSphere as a replacement for traditional petroleum-derived latex in coated paper.
“Several major paper manufacturers are already testing EcoSphere® biolatex™ binder in their coating formulations,” writes Jeff van Leeuwen of EcoSynthetix, which manufactures the product, at Better Paper's blog. As far as I know, none of the paper makers have gone public with their use of EcoSphere.
The product has a lower carbon footprint, is friendlier to recycling operations, and costs less than traditional latex, the company claims. It’s also biodegradable.
Other chemicals that are frequently used in papers include various plastics, titanium dioxide, and calcium carbonates.
Calcium carbonates are a mixed bag environmentally. Some people have promoted rock-based papers (which are mostly limestone-derived calcium carbonates) as being green because they are "tree free". And precipitated calcium carbonate (PCC) is sometimes considered a “carbon sink” because it is produced by combining carbon-dioxide emissions with lime.
But limestone doesn’t exactly grow on trees; it has to be mined. And its transformation into lime for shipment to PCC plants doesn’t exactly sound like an environmentally sustainable enterprise.
Then there’s bleach, which is commonly used to brighten papers but is also really good at killing just about everything. That leads me to Stupid Question #1: When you use white toilet paper, are you putting bleach on your derriere?
And that leads me to Stupid Question #2: Why do we insist on having such white toilet paper – or, for that matter, TP that’s been dyed, decorated, or perfumed? Do you really want those chemicals, how shall we say, traveling to Uranus? Or dumped into the sewer system?
Please see the following articles for more information about the environmental implications of:
- Toilet Paper: Marcal Challenges the Green-ness of Greenpeace
- Magazine Paper: Rethinking the "Green" Magazine Issue
- Harvesting Trees: Cutting some trees but saving the forest
Friday, October 23, 2009
Mathematically Challenged: Burrus Proposal Doesn’t Add Up for USPS
Such a deal! A labor union is offering to charge “only” 10.4 cents per letter to do work for which mailers are in essence only charging the U.S. Postal Service an average of 8.9 cents.
The offer from the American Postal Workers Union would also require a substantial increase in postage rates that would drive profitable business away from the Postal Service and harm its customers.
Here’s the “challenge” issued by William Burrus, president of APWU, last week to Postmaster General Jack Potter:
"Discontinue the exorbitant postage discounts that are offered to large mailers -- which are currently as high as 10.5 cents per letter -- and allow members of the APWU to perform all mail-processing functions at the rate of 10.4 cents for every letter and flat," Burrus said in a statement.
What the Burrus Challenge Means
The 10.5 cents refers to the difference between a 44-cent First Class stamp and the 33.5 cents paid for a one-ounce First Class letter presorted to the 5-digit level. But more than half of all presorted First Class letters pay a higher rate than the 5-digit level, resulting in an average rate of 35.1 cents, according to USPS. That’s an average postage discount of 8.9 cents off the single-piece rate.
By increasing the price of all presorted First Class letters to 44 cents, the Burrus proposal would be raising those rates by an average of more than 25%. Businesses would respond by shifting even more communication from mail to email, offering larger incentives for online billing, and finding other means of reducing their First Class mailings.
The price increases would decrease the volume of such mail by more than 6%, according to Postal Service studies that have been criticized as understating the price elasticity of First Class demand. USPS would save only 11.6 cents per letter on the lost volume, according to data USPS recently submitted for the “Fall Sale”.
A Billion-Dollar Mistake
So here’s what the math means: Presorted First Class letters currently contribute an average of 23.5 cents (35.1 minus 11.6) toward the Postal Service’s fixed costs. With Burrus’ proposal, the contribution margin would shrink to 22.0 cents (44 minus (11.6 +10.4)). Throw in the lost volume, and his challenge would decrease the contribution from presorted First Class by more than 12%, or well over $1 billion annually.
Such a financial loss would put pressure on the Postal Service to downsize even further, threatening the livelihoods of some APWU members.
Burrus’ simplistic challenge glossed over some other inconvenient facts:
• Price Cap: Annual increases in First Class rates by law are capped at the rate of inflation, resulting in no increases next year and only 5% in a high-inflation year. With presorted letters constituting more than half of all First Class mail and single-piece (44-cent) letters more than a third, there’s no way to implement Burrus’ plan without violating the cap even in a high-inflation year.
• Other Costs: Burrus says that APWU members would sort the letters for 10.4 cents each, but there would be other costs as well -- supervisors, maintenance of machinery, heating and lighting of buildings, etc.
• Work-Sharing Discounts: Study after study has shown that work-sharing discounts in general and the discounts for presorted First Class in particular are a good deal for the Postal Service.
• Mailers’ Cost Advantage: It is inherently easier and cheaper to sort bits of data than physical letters. That’s what presort is about – sequencing the addresses in an optimal manner for the Postal Service before the letters are even produced. No matter how hard they work, APWU members cannot achieve the same results as mailers at anywhere near the same cost.
Washington insiders tell me Burrus is a savvy player who knows what to say to get politicians’ attention. So why would he put forth a proposal that would hurt his own members and that probably would be impossible to implement anyway?
With his announced retirement next year, perhaps he’s more interested in getting sound bites than in proposing long-term solutions. And perhaps he realizes that no one on Capitol Hill will take his challenge seriously anyway.
Potter certainly didn’t. Less than 24 hours after Burrus issued the challenge, Potter announced that there will be no increases in postage for First Class and most other mail during 2010.
Maybe the timing was only a coincidence. Or maybe it was Potter’s way of saying to Burrus, “Don’t let the screen door hit you on your way out.”
Related Articles:
The offer from the American Postal Workers Union would also require a substantial increase in postage rates that would drive profitable business away from the Postal Service and harm its customers.
Here’s the “challenge” issued by William Burrus, president of APWU, last week to Postmaster General Jack Potter:
"Discontinue the exorbitant postage discounts that are offered to large mailers -- which are currently as high as 10.5 cents per letter -- and allow members of the APWU to perform all mail-processing functions at the rate of 10.4 cents for every letter and flat," Burrus said in a statement.
What the Burrus Challenge Means
The 10.5 cents refers to the difference between a 44-cent First Class stamp and the 33.5 cents paid for a one-ounce First Class letter presorted to the 5-digit level. But more than half of all presorted First Class letters pay a higher rate than the 5-digit level, resulting in an average rate of 35.1 cents, according to USPS. That’s an average postage discount of 8.9 cents off the single-piece rate.
By increasing the price of all presorted First Class letters to 44 cents, the Burrus proposal would be raising those rates by an average of more than 25%. Businesses would respond by shifting even more communication from mail to email, offering larger incentives for online billing, and finding other means of reducing their First Class mailings.
The price increases would decrease the volume of such mail by more than 6%, according to Postal Service studies that have been criticized as understating the price elasticity of First Class demand. USPS would save only 11.6 cents per letter on the lost volume, according to data USPS recently submitted for the “Fall Sale”.
A Billion-Dollar Mistake
So here’s what the math means: Presorted First Class letters currently contribute an average of 23.5 cents (35.1 minus 11.6) toward the Postal Service’s fixed costs. With Burrus’ proposal, the contribution margin would shrink to 22.0 cents (44 minus (11.6 +10.4)). Throw in the lost volume, and his challenge would decrease the contribution from presorted First Class by more than 12%, or well over $1 billion annually.
Such a financial loss would put pressure on the Postal Service to downsize even further, threatening the livelihoods of some APWU members.
Burrus’ simplistic challenge glossed over some other inconvenient facts:
• Price Cap: Annual increases in First Class rates by law are capped at the rate of inflation, resulting in no increases next year and only 5% in a high-inflation year. With presorted letters constituting more than half of all First Class mail and single-piece (44-cent) letters more than a third, there’s no way to implement Burrus’ plan without violating the cap even in a high-inflation year.
• Other Costs: Burrus says that APWU members would sort the letters for 10.4 cents each, but there would be other costs as well -- supervisors, maintenance of machinery, heating and lighting of buildings, etc.
• Work-Sharing Discounts: Study after study has shown that work-sharing discounts in general and the discounts for presorted First Class in particular are a good deal for the Postal Service.
• Mailers’ Cost Advantage: It is inherently easier and cheaper to sort bits of data than physical letters. That’s what presort is about – sequencing the addresses in an optimal manner for the Postal Service before the letters are even produced. No matter how hard they work, APWU members cannot achieve the same results as mailers at anywhere near the same cost.
Washington insiders tell me Burrus is a savvy player who knows what to say to get politicians’ attention. So why would he put forth a proposal that would hurt his own members and that probably would be impossible to implement anyway?
With his announced retirement next year, perhaps he’s more interested in getting sound bites than in proposing long-term solutions. And perhaps he realizes that no one on Capitol Hill will take his challenge seriously anyway.
Potter certainly didn’t. Less than 24 hours after Burrus issued the challenge, Potter announced that there will be no increases in postage for First Class and most other mail during 2010.
Maybe the timing was only a coincidence. Or maybe it was Potter’s way of saying to Burrus, “Don’t let the screen door hit you on your way out.”
Related Articles:
- When business is down, kick the customers: Burrus doesn't want the Postal Service to meet with its largest customers.
- Why Potter Is Freezing Postal Rates, And What It Means For 2010
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