Company Profile

Daishowa Paper Manufacturing Co: Quality, geographically well-positioned assets

By Drew Miller, Executive Editor, Pulp & Paper Company Profiles

Daishowa's first venture in North America was a 25% stake in the Cariboo Pulp & Paper Co., which, in late 1971, started up a bleached kraft pulp mill in Quesnel, B.C. In 1978, Daishowa set up a wholly owned subsidiary, Daishowa Canada Co. Ltd., headquartered in Vancouver, B.C., to serve as a holding company for Daishowa's western Canadian interests. Daishowa Canada's first project was participation in a joint-venture thermomechanical pulp (TMP) mill, also at Quesnel, which commenced operations in 1981. In 1987, Daishowa, through its wholly owned subsidiary Daishowa America Co. Ltd., purchased a groundwood papers mill in Port Angeles, Wash., from James River Corp. for $78 million. In 1988, Daishowa began work on a greenfield bleached kraft pulp mill near Peace River in northern Alberta and acquired Reed Paper Inc.'s North American paper operations, which included a large newsprint mill in Quebec City, Que. Reed's assets were placed in an eastern Canadian holding company, Daishowa Forest Products Ltd.

In recent years, Daishowa's acquisitions have strayed from the papermaking theme. In 1989, Daishowa Canada purchased Brewster Construction Ltd., and a year later the company acquired Canfor Corp.'s High Level Sawmill Div. More recently, however, with pressures mounting on its Japanese parent, Daishowa's North American operations have been less spendthrift, with the bulk of capital funds directed to manufacturing recycled-content telephone directory paper at its Quebec City and Port Angeles mills. In late 1992, Daishowa transferred its Alberta operations to Daishowa-Marubeni International Ltd. Daishowa did not release the terms of the transaction, but Nikkei Weekly reported that the price for the transferred operations was about ´110 billion (approximately US$1 billion).

THREE DISTINCT GROUPS. Daishowa's North American assets can, in general terms, be considered as three distinct groups: western Canadian operations under the auspices of Daishowa Canada; eastern Canadian assets held by Daishowa Forest Products; and U.S. operations controlled by Daishowa America. Daishowa's North American operations are well-positioned: east and west coast plus northern interior of the continent.

MARKET PULP. Daishowa's primary focus is on market pulp. Its holdings include 50% interests in the Peace River mill in Alberta and the Quesnel River Pulp Co., and effectively a 25% interest in Cariboo Pulp & Paper in interior British Columbia.

The world-class Peace River mill is located 300 miles north of Edmonton, Alta. The C$500 million facility began production in July 1990, and its single pulping line can turn out 400,000 metric tpy of air-dried northern bleached kraft pulp, of which about two-thirds is hardwood (100% aspen) and one-third is softwood (spruce or pine). The hardwood pulp furnish is supplied by Daishowa Forest Management Area and is used for high-quality papers such as printing and photographic papers. The softwood pulp, much of whose chip furnish comes from Daishowa's High Level and Brewster sawmills, is used for tissue and towel products.

In early 1992, Daishowa Canada reportedly decided to postpone plans to "double" capacity at the Peace River pulp mill, citing an uncertain outlook for the pulp market and the desire to have land claim issues settled with the Lubicon Indians before proceeding. In early 1995, the mill did increase its hardwood pulp production by about 100 tpd when a C$7.5 million mini "booster dryer" came onstream. As a result of this and other earlier "debottlenecking" measures, hardwood production has increased to 1,115 metric tpd (400,000 metric tpy). When the mill makes softwood pulpÑabout 25%-30% of its outputÑproduction is about 1,000 tpd.

In late 1991, "Native Land" claims by the Lubicon Indians began a national boycott in Canada of Daishowa products. A court-ordered settlement of the issue was being conducted at presstime. In late 1992, the company transferred its Alberta operations to Vancouver, B.C.-based Daishowa-Marubeni International, an equal partnership between Daishowa and Marubeni Corp. The transaction involved the Peace River Pulp Div., High Level Forest Products Ltd., Brewster Construction Ltd., and Daishowa's Edmonton office.

Quesnel River Pulp is a joint venture between West Fraser Timber Co. Ltd. and Daishowa Canada. The mill was originally built in 1981 as a 175,000 metric tpy market TMP and refiner mechanical pulp mill. Two years later, it was modified to produce bleached chemi-thermomechanical pulp (BCTMP).

In 1988, the mill was expanded by the addition of a third line and a bleach plant to its current 300,000 metric tpy capacity. At present, both TMP and chemi-thermomechanical pulp (CTMP) can be produced at this facility. A significant proportion of Quesnel's TMP production is shipped to Japan, where Daishowa's paper mills are the major customer. West Fraser markets the CTMP production with a sizable portion selling to Procter & Gamble Co. In 1996, Quesnel River Pulp operated at 94% of capacity, producing 281,000 metric tons. By contrast, the mill operated at close to 100% of capacity in 1995, producing 304,000 metric tons of pulp, about the same as in 1994.

Cariboo Pulp & Paper is a joint venture between Daishowa-Marubeni Interna-tional and Weldwood of Canada Ltd. The mill, also located in Quesnel, began production in late 1971 with a design capacity of about 235,000 metric tpy. In June 1989, an expansion project was completed, raising capacity to a current 320,000 metric tpy (including incremental capacity speedups). More recently, work has concentrated on the mill's environmental performance. In 1991, Cariboo Pulp & Paper started up an oxygen delignification system and a secondary treatment basin that enabled the facility to meet environmental standards for mill effluent. And in August 1992, Cariboo Pulp & Paper commissioned additional chlorine-dioxide generating capacity. As a result of these moves, Cariboo Pulp & Paper now produces 100% elemental chlorine-free pulp.

In the meantime, the mill operated at an estimated 95% of capacity in 1996 to produce about 304,000 metric tons. In 1995, the mill produced 312,000 metric tons, operating at 98% of capacity. A significant portion (as high as 80%) of Cariboo Pulp & Paper's production is shipped offshore. In January 1993, the mill was certified under the ISO 9001 standard.

NEWSPRINT AND GROUNDWOOD PAPERS. Daishowa's eastern Canadian pulp and paper operations include a large, fully integrated newsprint and uncoated groundwood papers mill in Quebec City. The mill can churn out 430,000 metric tpy of newsprint and uncoated groundwood directory paper on four 222 in. machines, two of which have Tri-Nip presses. The mill also produces boxboard on PM No. 1, a 127 in.-wide seven-cylinder machine.

Daishowa invested roughly C$60 million at this facility to build a 135,000 metric tpy recycling plant. The project was completed in early 1992, enabling the Quebec mill to turn out about 75,000 metric tpy of recycled-content (40%) telephone directory paper, including yellow and lightweight, in addition to recycled-content (20%-35%) newsprint. An estimated 150,000 metric tons of old newspapers (ONP) and old magazines (OMG) are consumed annually by the mill to manufacture its recycled newsprint and directory sheets.

The mill's newsprint capacity totals 390,000 metric tpy with three machines dedicated to this grade. A fourth, PM No. 3, produces approximately 60,000 metric tons of directory paper with the balance newsprint. One or more machine conversions to directory are probable, given the current newsprint market conditions. However, no projects have been announced as of presstime. A TMP plant costing C$125 million started up in late 1989. More recently, a secondary treatment facility, costing C$22 million, started up.

In the U.S., Daishowa's principal holding is the Port Angeles mill in northwestern Washington. James River sold the mill to Daishowa in November 1987, after having acquired it a year earlier in its takeover of Crown Zellerbach. The mill produces about 135,000 metric tpy of uncoated groundwood directory paper on two machines, PM Nos. 2 and 3, whose capacities are 50,000 metric tpy and 85,000 metric tpy, respectively. Both machines were recently rebuilt (PM No. 2 in 1987 and PM No. 3 in 1989). PM No. 1 was shut down in the mid-1980s due to inferior sheet quality.

The Port Angeles mill is a leading producer of uncoated groundwood directory paper on the West Coast, with competition coming from MacMillan Bloedel Ltd.'s (MB) Port Alberni mill in British Columbia. Together with its Quebec City mill, Daishowa's directory capacity is approximately 195,000 tpy, ranking it among North America's leading products MB, Bowater Inc., and Abitibi-Consolidated Inc.

As is the case at Quebec City, Daishowa has reoriented the Port Angeles mill to recycled-content production. A $40 million, 70,000 metric tpy deinking line started up in 1992, and eventually all of the mill's paper production is expected to contain 40% recycled fiber. In 1992, the company also completed a warehouse for old telephone directories (OTD) next to the deinking plant. The mill consumes an estimated 50,000 tons of ONP, 10,000 tons of OMG and 10,000 tons of OTD for its recycled sheet. OTD will continue to compose 10% of the mill's recycled fiber source, an alternative to ONP, which is in short supply in the Pacific Northwest.

As well as responding to market-and government-induced demand trends, the advent of recycled paper production has reduced the mill's dependence on virgin fiber. This has been particularly welcome in light of skyrocketing costs for woodfiber in the Pacific Northwest.

The decision to invest in recycled paper production has also paid major dividends with customers. Daishowa's high-quality directory sheet, coupled with its dedication to recycling, has led to share gains at many major directory printers-at the expense of incumbent suppliers. In light of the severe overcapacity situation for directory paper in North America in the mid-1990s, Daishowa scored a major victory when it, along with Bowater and MB, was granted a 275,000 metric ton contract to supply directory paper to Japan's Nippon Telephone & Telegraph. For three years beginning in early 1993, Daishowa (which received the largest contract share) has supplied 135,000 metric tons of directory paper from its North American and Asian facilities.

RESTRUCTURING. On Daishowa's home-front, in April 1994 the company unveiled a five-year restructuring program aimed at making it profitable again. Daishowa shut down six unprofitable paper machines at its Fuji mill, whose capacity was 635,000 metric tpy of newsprint, free-sheet, and groundwood printing papers. The company will cut 1,100 jobs by March 1999 at its headquarters and three paper mills in Japan. The cuts (through voluntary early retirement, attrition, and reorganization) are expected to save Daishowa ´8.5 billion ($94.4 million) in annual labor costs.

LIMITED FINANCIAL DATA. Daishowa does not release financial information specific to its North American operations. However, as a publicly traded company, there is information regarding the parent company. Daishowa Paper Manufacturing is the third largest paper company in Japan.

For its fiscal year ending March 31, 1997, Daishowa posted a dramatic increase in earnings for the 1996-197 period. Net profits totaled ´9.3 million (approximately US$78 million) compared to a loss of ´8 million (approximately $67 million using 1996 exchange rate) in 1995. Sales for the year rose 2.4% to ´330.9 billion ($3.2 billion) from ´323.2 billion ($3.1 billion) posted during the year earlier period. Most other major Japanese producers (Oji Paper, Nippon Paper, Daio Paper and Mitsubishi Paper) posted lower recurring profits. This was prompted by higher costs for imported raw materials such as woodchips and pulp, which in turn was due to the depreciation of the yen against the dollar. Slower growth in demand also contributed to the lower profits.

 

AT A GLANCE::

 

WAUSAU PAPER MILLS CO.

North American Headquarters: Vancouver, B.C.

Year Founded: 1971

Employees: 2,000 est.

Further information on Daishowa Paper and other companies in this series can be found in Pulp & Paper's 1996 Pulp & Paper Company Profiles: Performance and Strategy Analysis of North American Paper Companies.

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