Kelly H. Fergusonis the editor of Pulp &Paper magazine

WHAT'S AHEAD

With paper prices showing signs of strengthening and companies continuing to consolidate to improve performance, PULP & PAPER editors explore how North American pulp, paper, and paperboard producers are reacting to radical shifts in their markets and the growth of new global players. Top industry analysts predict how U.S. and Canadian companies will fare financially and how labor issues, fiber prices, and environmental regulations might affect overall paper industry performance.

CAPITAL SPENDING

As demand for paper and board products strengthens and prices begin to inch up, North American paper companies must begin to deal with older equipment after several years of capital spending cutbacks. This report analyzes whether companies will loosen their purse strings and where these valuable capital dollars will be spent.

From the EDITORS

Papermaking's future: Condominiumization?

The November 3 issue of Pulp & Paper Week (Vol. 19, No. 42) wasn't very different from any of the most recent issues of the newsletter. Companies continued their struggle to push through price increases in almost every pulp, paper, and paperboard grade. Third-quarter profits were better because of some higher prices in newsprint and containerboard. Asian companies were still announcing expansions.

And in North America, reorganizations abounded-Stone Container, Louisiana Pacific, Crown Vantage, E.B. Eddy. These days, paper companies rearrange their organizations almost as much as a card shark shuffles a new deck.

One item-the lead story titled, "Stone to pare debt and exit pulp, newsprint; renews 1st love-containerboard/packaging"-was especially interesting. It seems that Stone Container, previously bitten by the diversification bug in 1987 when it bought Southwest Forest Industries, has decided to get out of Canada, newsprint, and pulp. All of this is an effort primarily to pay down a debt in excess of $1.5 billion and refocus on what Stone considers its core business.

A NEW "BIZ" PHRASE. This item was particularly intriguing to me because of one phrase used by Stone in describing the spinoff of its pulp operations-"condominiumized." The entire sentence read this way: "At dual-product facilities, Stone said, it will retain the containerboard mills, while pulp portions will be 'condominiumized,' so as to separate facilities with common areas into properties that allow different ownership."

What an interesting concept. In keeping with the outsourcing trends that have gone on with power generation, maintenance, wastewater treatment, satellite chipping, etc., Stone has decided that its expertise doesn't really lie in generating pulp but in turning pulp into boxes. Thus, even at its integrated facilities, Stone is looking for a buyer of its pulp operations at such mills as Bathurst, N.B., Panama City, Fla., and Port Wentworth, Ga.

Pondering this idea, the vision one gets is that some expert pulp producer owns the pulp production part at one of these mills up to the point where the pipe from the high-density storage tank enters the paper machine building. From that point on, Stone acts as a nonintegrated paper producer.

You would assume that with a supply close by, Stone would buy pulp "over the wall" from what used to be its own pulp operations. But just think of the working relationship that would have to be ironed out.

Somebody call the lawyers. Have we got some contract negotiations for them to work on?

And just think if the purchasing contract isn't acceptable. XYZ Pulp Co. reroutes a few pipes, installs a few pulp dryers, and Stone begins a search for a new supplier. Or maybe Stone could sell their side of the operation. But we all know how hard it is to sell a condo, even in Panama City, Fla.

THE FUTURE? What Stone and many other companies are doing does have a serious side. Many companies in North America-Georgia-Pacific and International Paper just to name a couple-seem to have decided that controlling their fiber is not necessarily a way to create shareholder value.

Prices for products from the forest are just too hard to control, so the trend is to spin off business units and make them stand profitably on their own or sell them outright. But this strategy may eventually produce a detrimental effect when third parties are in control of this continent's fiber supply.

But enough of that serious stuff. What about our paper mill condos? Is there a point at which mill owners might offer time sharing for their operations? Or how about a "dude" mill where white collar workers and industry retirees could go on vacation to produce paper?

Imagine this classified ad in the back of P&P: