News SCAN

U.S. capacity growth forecast to slow
to 1.2% annually during 1998-2000

Recognizing that domestic market growth for paper and paperboard is mature, U.S. papermakers plan to increase production capacity at an annual average rate of only 1.2% over the next three years. This is less than half of the 2.5% annual rate of the last 10 years. With a slowdown in capacity growth, paper mill fiber requirements for woodpulp and recovered paper will also ease, although recovered paper consumption will still expand slightly faster than woodpulp consumption.

These are the main findings of the 38th annual capacity survey published by the American Forest & Paper Assn. (AF&PA). The results were released at a news conference in Washington, D.C. Terry Brubacker, AF&PA vice president, noted that while U.S. capacity growth has slowed, plans announced by foreign producers indicate aggressive capacity growth overseas, particularly in the Asia Pacific region. He said the prospect of tariff elimination in Asia and elsewhere in the world would provide U.S. mills with expanded export opportunities and access to the fast-growing paper markets of Asia and Latin America.

The overseas markets will dominate future paper demand growth, supplied by newer and larger world-class paper machines built offshore. No new greenfield paper mills are planned in the U.S. over the next three years and capacity additions will be mostly limited to productivity gains and rebuilds of existing paper machines. Only in the uncoated free-sheet, recycled linerboard, and tissue grades are new paper machines planned.

The 1.2% annual growth rate forecast for the 1998-2000 period is the lowest for any three-year period since the 1.4% growth rate seen during the 1974-77 period. Last year's survey, covering the 1996-99 period, projected a 1.5% average annual growth rate. With capacity growth scaling back, analysts are optimistic that market supply/demand balance will remain good and the industry should enjoy a cyclical recovery over the next several years. n

Newsprint price increase announced

Abitibi-Consolidated Inc. announced a $50/metric ton increase on 30-lb standard newsprint for April and guaranteed that, if the increase was successful, the company would not take the lead on another increase for the rest of 1998. The estimated 8% increase on the East and West coasts would raise the transaction price to about $640-$650/metric ton for newsprint in North America and would be the third price hike in 13 months in the U.S. and Canada.

Buyers for two of the five largest U.S. daily newspaper companies met the proposal from the world's largest newsprint producer with disdain. "All they'll get is maybe a June or July increase of $35-at the most," said one executive. "I think it will be laughed out of town," said another.

Another buyer for one of the 15 largest U.S. daily newspaper companies said the increase could hinge on January consumption in the U.S. He said three things would need to happen for the market to accept the $50/metric ton increase: U.S. daily newspapers would need to continue their "hot" consumption of newsprint (through November, the dailies consumed more newsprint each month than in 1996); the more than five-month-old strike at two Fletcher Challenge Canada Ltd. newsprint mills in British Columbia would need to continue (talks between the union and company about reopening negotiations broke off on Dec. 11); and the Asian economic problems would need to stabilize since North American producers export an estimated 42% offshore to Asia. "The chance of all three of those happening is very slim," the source said.

While buyers were concerned about the proposed increase from Abitibi-Consolidated for next year, the average transaction price of 30-lb newsprint in North America in 1997 ended up being less than the 1996 and 1995 averages. The 1997 averages of $555/metric ton on the East Coast and $560/metric ton on the West Coast were $115/metric ton or about 17% below the 1995 average prices. The 1997 averages were down 14% below the 1996 average. n

Producers announce boxboard price hikes

Citing increased production costs, profit margin pressures, and improved market demand, several paper companies recently announced price increases for coated recycled folding boxboard. Generally, the announcements are proposing price hikes of $40/ton effective on or after Jan. 1, 1998. Current selling prices for 20 pt clay coated news back (CCNB) grades are $590-$600/ton. Producers last raised prices in August. At least four companies were confirmed to have notified their customers of additional price increases. Among them are International Paper Co.'s recycled mill in Sprague, Conn.; Michigan Paperboard Co. in Battle Creek, Mich.; and Rock-Tenn Co. (mills in Battle Creek, Mich., St. Paul, Minn., Delaware Water Gap, Pa., Sheldon Springs, Vt., and Dallas, Texas). The Newark Group announced price increases for its affiliates Newark Pacific Paperboard Corp. in Los Angeles, Calif., Newark Sierra Paperboard Corp. in Stockton, Calif., and Newark Atlantic Paperboard Corp. in Lawrence, Mass. n

Two LWC mills in Alberta still active

Backers of two proposed lightweight coated (LWC) groundwood mills are in the process of undergoing environmental assessment as they continue down the long path toward provincial approval. The mills would be built in timber-abundant Alberta, which does not have any printing/writing paper mills.

An official with Daishowa-Marubeni International Ltd. has said its proposed C$900 million, 300,000 mtpy LWC project in Peace River, Alta., is "on track" and slated for startup in 2001. The mill would have one paper machine and a chemi-thermomechanical pulp (CTMP) line. Woodfiber would come from the existing kraft mill at the site, which produces both bleached hardwood and softwood kraft, and has a capacity of 400,000 mtpy. The estimated volume of deciduous roundwood to be harvested for the mill is about 200,000 m3/year.

Similarly, the proposed 360,000 mtpy LWC project by Grande Alberta Paper Ltd. for Grand Prairie has begun environmental assessment. The one-machine, C$900 million mill will include a CTMP pulp mill.

In both cases, the Alberta Natural Resources Conservation Board must pass judgment on the companies' proposals and environmental impacts before making a recommendation to the provincial authorities on whether to allow construction. n

Demand to rise for new forms products

Sales of traditional forms products will continue to decline at an annual average rate of 6.1% through the year 2001, but the industry will see modest growth in sales of newer cut-sheet and pressure-sensitive label forms as the market shifts under pressure from electronic competition. That is the conclusion of a study released by the International Business Forms Industries Inc. (IBFI) titled, "Perspective 1997: The present and future of the North American Business Forms & Systems Industry."

The traditional forms market encompasses stock and custom continuous forms, unit sets that use carbon or carbonless paper layers, salesbooks, and the like. Nontraditional forms are converted products-primarily blank or preprinted cut-sheet, and stock or custom label and tag products.

During 1996, U.S. dollar revenue of traditional forms products was down 4.3% compared with the previous year, to $6.7 billion. However, sales of cut-sheet and labels rose 5.1% to $1.47 billion. The study predicts that by the year 2001, traditional forms sales will total $4.87 billion, while sales of cut-sheet and label will rise to $1.8 billion, a 26% increase.

Good year expected for advertising

U.S. advertising is again expected to outpace GDP growth in 1998, boding well for paper consumption by publishers, direct mailers, retailers, and catalogers. That is the prediction of McCann-Erickson forecaster Robert J. Coen, who publishes an annual report on expenditures for the advertising industry.

Coen said U.S. advertising for 1997 is projected to total $186.8 billion, for a gain of 6.6%-much higher than the 5.6% growth he originally forecast a year ago. In 1998, U.S. advertising is expected to grow 6.2% to $198.4 billion, while the GDP is forecast to rise 4.8%.

While his report paints a rosy scenario, Coen also said the 1998 trend may be "mixed" in light of the comparison to above-average performance in 1997 and the possibility of some moderation in U.S. economic growth. But the Winter Olympics and elections could create extra demand and keep the present momentum going through part of 1998.

For 1997, advertising expenditures rose in all categories of media-newspapers, magazines, television, radio, direct mail, and Yellow Pages-by 6.6%. In 1998, national marketers are expected to increase their total media ad budgets by 6.3% to $116.9 billion. Newspaper advertising is expected to climb by 6%, magazines by 5.5%, direct mail by 6%, and Yellow Pages by 6.5%. Cable TV is the only sector likely to post double-digit gains of 13%. n

Maine tissue company in receivership

Tree Free Fiber Co. was placed into receivership three weeks after closing its Augusta, Maine, mill. A spokesman for the Finance Authority of Maine (FAME), a state loan guarantee agency, said a receiver was appointed for the company Dec. 11 by the Cumberland County Superior Court. Buyers are now being sought for the 20,000 tpy former Statler Tissue Corp. mill which ceased production on Nov. 21, putting 115 people out of work.

According to an Associated Press report, FAME and Tree Free Fiber discussed a rescue attempt for the company, but both sides were said to be "far apart" on how much risk each should take. With no agreement, Tree Free's main creditor, Key Bank, requested that a receiver be appointed to pursue the sale or dismantling of the plant. Tree Free's total secured and unsecured debt is estimated at more than $11 million, and Key Bank is reportedly owed $3.3 million in loans, interest, and penalties. Other creditors include Massachusetts-based Thermo Fibertek and the U.S. Small Business Administration.

The plant is currently idle, but vital systems are being maintained by the receiver, Argus Management, to prevent damage to the paper machine. According to a state official quoted in the Kennebec Journal, five companies have expressed an interest in buying the mill. n

Another new tissue mill in Miami, Fla.

Edwards Paper Co. Inc., a Miami, Fla.-based tissue converter, is installing a tissue paper machine to produce single- and two-ply facial and bath tissue and paper towels for the away-from-home market. The 106-in. wide paper machine has a maximum operating speed of 2,800 fpm and includes a 10 ft diameter Yankee dryer and has a capacity of approximately 18,000 tpy. The machine is scheduled to begin production in late January.

The 100%-recycled mill will use coated book stock and white ledger as a fiber source for its deinked pulp plant. Approximately 75% of the mill's production will be sold in the U.S. with the remainder to be exported to the Caribbean islands and Central America. The company currently has a converting capacity of 112 tpd, with about 80% of the parent rolls imported from Brazil. n

Port Townsend Paper acquired by NW firm

Port Townsend Paper Corp. has been sold by its parent Haindl Papier GmbH of Germany to Northwest Capital Appreciation Inc., a Seattle, Wash., merchant banking firm. Port Townsend operates a kraft paper mill and two bag plants in Port Townsend, Wash., and Portland, Ore. No immediate changes in operations were planned, according to a news release. Terms of the transaction were not disclosed.

The new president and CEO is John Begley, who was with Weyerhaeuser Corp. for the past 24 years, most recently as strategic planning director. Former CEO Ted Swain will remain as chairman of the board in an advisory capacity.

Haindl purchased the mill from Crown Zellerbach in 1983. The company employs about 450 people. n

Gulf States to buy food container maker

Gulf States Corp. signed a letter of intent to acquire Fold-Pak Corp., a privately held packaging company headquartered in Newark, N.Y., with additional facilities located in Georgia, Pennsylvania, and California. Fold-Pak specializes in ice cream packaging and is the leading U.S. supplier of paperboard carryout food containers. Under the proposed acquisition, Fold-Pak's packaging operations would be consolidated with Gulf State's paperboard packaging division. Terms of the sale were not disclosed, but the deal is expected to be completed in early 1998.

Gulf State's president and CEO, Ed Woods, said the Fold-Pak acquisition would allow the company to expand its paperboard packaging operations into new markets, particularly ice cream packaging. Gulf States currently produces bleached paperboard at its flagship paper mill in Demopolis, Ala., and converts about 50% of its own production at six carton plants primarily located in the U.S. southeast. n

Fonda Group makes two acquisitions

The Fonda Group Inc. in December announced two major acqusitions. It has agreed to purchase Leisure Way Inc., a Lakeland, Fla.-based manufacturer of private label white paper plates, and it will buy a percentage of the common stock of Sweetheart Holdings Inc., the country's largest manufacturer of paper and plastic cups and food service products. Terms of the transactions were not disclosed.

Fonda, based in Valhalla, N.Y., is the country's largest producer of private label food service products for retail, institutional, and consumer markets.

During the past two years, Fonda has transformed itself from a small, regional supplier of food service packaging. It has expanded its regional operations through a series of acquisitions to supply a full line of paperboard and tissue products throughout the country. The company has also emerged as the leading supplier of premium napkins and placemats to the food service industry. n

Greif Bros. reports year-end results

Greif Brothers Corp. recently reported financial results for the three months and 12 months ended Oct. 31, 1997. For the year, net income declined $18.1 million from $42.7 million in 1996. Net sales totaled $649 million compared with $637 million in 1996. The results were adversely affected "by the 19-year low in containerboard pricing," said Michael Gasser, chairman and CEO. Greif Brothers manufactures a broad variety of industrial packaging, including corrugated boxes, steel and fiber drums, plastic drums, and multiwall bags. The company's paper packaging operations are integrated with kraft and recycled paper mills and timberlands.

For the fourth quarter, net sales rose 9% to $177 million from $162 million a year ago. Important pricing changes occurred during the quarter to restore profitability to the containerboard segment, said Gasser. In addition, specific restructuring programs were implemented which are expected to show future benefits. A $6.2 million charge against earnings was recognized during the fourth quarter to reflect these consolidation costs. n

Plan abandoned by Paperboard Industries

Paperboard Industries International Inc. of Montreal abandoned its plan to file a public offering to buy all of the common shares of Cascades SA that it does not own, citing the pricing environment in the stock markets. The company announced in early December that it planned to file a public offering, to be followed by a mandatory redemption offer, to purchase the shares of Cascades listed on the secondary market of the Paris Exchange and on the international floor of the Montreal exchange.

In a news release, Paperboard said a public offering "would not constitute the best use of funds." Paperboard owns 81.55% of Cascades. It operates seven boxboard mills in Canada, France, Sweden, and Germany with a total capacity of 785,000 mtpy.

Several other Canadian forest product companies have abandoned plans for stock offerings due to market conditions, including IPOs for E.B. Eddy Ltd. and Millar Western Forest Products Ltd. The Toronto Stock Exchange's paper and forest products group dropped 20% in the last two months of 1997 as investors became more nervous about whether lower Asian demand will affect Canadian producers' exports.

ACX Technologies Inc. has acquired 92.6% of the common shares of Britton Group plc. In December, Britton said it would accept ACX's cash offer to be acquired for about $355 million. n

Doman buys Pacific Forest holdings

Doman Industries Ltd. added to its sawmill and timber holdings recently with the C$143.8 million acquisition of the crown (provincial) operations of Pacific Forest Products Ltd. in British Columbia. Meanwhile, TimberWest Timber Trust completed the previously announced purchase of all of the shares of Pacific Forest for C$29/share in a transaction valued at C$72 million. Avenor Inc. sold its 53% interest in Pacific Forest for C$302 million. TimberWest Timber Trust is the parent of TimberWest Forest Ltd.

Doman purchased three sawmills, crown woodland, and related operations, which it said are complementary and primarily adjacent to its solid wood operations. The acquisition will increase Doman's annual fiber supply by about 80%; Doman is a Montreal-based manufacturer of pulp, forest products, packaging, and fine papers. In forest products, the acquisition will expand its sawmills to nine with annual production capacity of more than 1 billion bd ft.

TimberWest now owns about 334,000 hectares of privately owned timberlands on Vancouver Island, B.C., as well as two sawmills with capacity of about 197 million bd ft/year. The timberlands represent the largest holding of privately owned forest lands in British Columbia; about 90% of woodlands in the province are held by the government.

Georgia-Pacific Corp. (G-P) completed the separation of its timber operations into a separately traded company, the Timber Co., whose shares began trading Dec. 17 on the New York Stock Exchange. G-P named Donald Glass, exec. v.p. timber, as president and CEO of Timber Co. n

Assi announces big European acquisition

AssiDomän AB of Sweden said it has reached agreement with the Dutch investment company Leeuw Finance Amsterdam BV to acquire all the shares in the Eswell paper and corrugated packaging group. The Eswell group produces 130,000 mtpy of recycled containerboard at three mills in Italy and produces 500 million m2 (5.38 billion ft2) of corrugated packaging at 13 corrugated box and sheet plants located in Spain, Italy, France, Germany, and the Netherlands. In addition, the group operates an offset printing plant and a 20,000 mtpy specialty paper mill and converting. n

Halla Paper files for bankruptcy protection

Halla Group's pulp and paper company in South Korea filed for bankruptcy protection from creditors, sources for the company's U.S. operations said. Some in the industry believe other Korean papermakers could meet a similar fate, caused by the economic crisis that has wracked Southeast Asia.

Halla is the first paper company to be directly hit since the economic crisis began in late October. A spokesman for a Halla subsidiary in southern California said the company newsprint mill, which has a 250,000 mtpy Voith Sulzer machine in Mok'po, South Korea, continued operating as of Dec. 11. n

China to probe newsprint dumping

China will investigate charges of newsprint dumping by U.S., Canadian, and South Korean producers into China, the government's Ministry of Foreign Trade and Economic Cooperation told the International Business Daily.

The Xinhua news agency in China said the probe was aimed at protecting domestic newsprint producers in China from imports priced below the going market rate. Nine newsprint producers in China asked for the government investigation, after newsprint imports into China increased by 900% in 1996 and were up year-over-year through first-half 1997.

MoDo of Sweden said it will invest about $25.5 million on upgrading directory machine No. 51 at the Braviken mill, operated by subsidiary Holmen Paper in Sweden. The project calls for putting in a soft-nip calender in February. The project is expected to help reduce energy costs at the mill and improve quality of the paper produced. The Braviken mill ships some newsprint and directory paper to the U.S. n

Metsä-Serla buys 70% of Price & Pierce

Metsä-Serla Oy of Finland signed a letter of intent to acquire 70% of Price & Pierce International Inc., a global pulp and paper marketing and sales company based in Stamford, Conn. The cost of the acquisition will be approximately FIM45 million ($8.5 million), said Metsä-Serla. The current management of Price & Pierce will control 30% of the company. Price & Pierce has 120 employees in the U.S., Europe, and Southeast Asia and expects sales to reach about FIM1 billion ($190 million) this year.

The move is part of Metsä-Serla's strategy of developing its international paper merchanting business. In November, Metsä-Serla acquired Classic Papers Ltd. in the U.K. from Stora Group. n

Schweitzer-Mauduit makes investment

Schweitzer-Mauduit International Inc. reached an agreement to acquire a controlling interest in Cia. Industrial de Papel Pirahy, a leading specialty paper manufacturer located in Brazil. Pirahy is a wholly owned subsidiary of Souza Cruz SA. Its principal products include cigarette papers, coated and uncoated free-sheet printing papers, label and release papers, and technical specialties. Pirahy operates five paper machines at a single mill located in Santanésia near Rio de Janeiro with annual production capacity of 63,000 mtpy.

Schweitzer-Mauduit has agreed to pay $62 million for 100% ownership of the stock of Pirahy, subject to approval of the company's minority shareholders. Wayne H. Deitrich, chairman and CEO of Schweitzer, said the acquisition would advance the company's long-term growth strategy and provide a manufacturing base in South America. Pirahy is the largest supplier of cigarette papers in South America with approximately a 47% market share. Schweitzer, formed from the former cigarette and specialty paper operations of Kimberly-Clark Corp., is headquartered in Alpharetta, Ga. n

Global warming treaty hailed for now

The historic but preliminary global warming treaty drafted in Kyoto, Japan, has a long way to go. The pact to limit greenhouse gas emissions must now be approved by the governments of the 38 industrialized countries involved in the negotiations and additional delays are likely since the treaty gives no specific guidelines or procedures to detail how governments and their encompassing industries should achieve treaty targets.

The treaty was formally adopted in December with the single pounding of the gavel by the conference chairman, who determined that a consensus had been reached, according to various media reports. No vote was taken. The treaty will require cuts averaging 5.2% in greenhouse gases from 1990 levels in the period 2008-2012. Limits vary for each country, with the U.S. expected to cut emissions by 7% of 1990 levels, although some claim that the actual fine-print emissions limits hover in the 2% to 3% range. The U.S. originally proposed a return to 1990 levels, but political pressure forced the Americans to drop below the 1990 provisions. Numerous other key nations agreed to an 8% reduction, although Japan accepted a reduction of 6% from 1990 levels. n

Logging old forests global warming risk

New research is finding that the U.S. Northwest's old growth forests may have more ability to store carbon than previously thought. The findings, released by Oregon State Univ. (OSU) scientists in December, could have broad implications for how the region's old growth forests are managed, and how they may help offset the effects of global warming-the centerpiece of a new international treaty.

These ancient forests are not the idle, decaying ecosystems often portrayed, the researchers said. Instead, old growth forests suck in vast amounts of carbon dioxide, give off oxygen, and then store the carbon in the wood and foliage of the trees.

Nashua to sell coated products business

Hurt by a loss of $3.1 million in the third quarter, Nashua Corp. of New Hampshire recently said it plans to sell its specialty coated products division based in Merrimack, N.H., and its international photofinishing operations in Canada, Northern Ireland, and Britain.

The company said it hired the investment banking firm BT Alex Brown to assist in finding buyers for the businesses to be sold, which have combined annual sales of approximately $120 million. Nashua has total annual sales of approximately $400 million.

The announcement follows completion of a strategic review of the company's operations, with the goal of "maximizing value for our shareholders," said Gerald Garbacz, CEO and president of the company. Garbacz said each of the retained business-labels, imaging supplies, and the U.S. photofinishing business-have distinctive market opportunities which will enable them to realize significantly increased growth and profitability over the next several years.

"Our concentration on a smaller portfolio of businesses, coupled with overhead reduction to be implemented throughout 1998, should increase Nashua's profitability and yield substantially improved returns on invested capital," said Garbacz.

Tembec partnership to take over Atholville

Canadian pulp and paper producer Tembec Inc. and Asian fiber and chemical conglomerate Birla Group are planning a partnership to produce dissolving pulp at the idled Repap Enterprises Inc. sulfite pulp mill in Atholville, N.B. The deal was expected to close in January for a price identified only as "nominal consideration," Tembec said.

Tembec pulp group president Terrence P. Kavanagh said the mill will produce 110,000 mtpy of rayon-grade dissolving pulp-all for Birla-when it restarts in April 1998. He described necessary conversions to dissolving pulp as "minimal" and "straightforward," mainly involving the acid preparation area.

"This was a good investment opportunity," Kavanagh said, adding that Birla has been a Tembec customer for more than 20 years. The company said in an announcement that it signed a memorandum of understanding with Repap to make a conditional purchase agreement on or before Jan. 9, 1998. Kavanagh declined further comment at this time on conversion costs, assumed debt, and other aspects of the financial acquisition.

Lenzing AG opened its new 12,000 mtpy lyocell plant in Heiligenkreuz, Austria, on Oct. 17; the plant is expected to nearly triple in size by 2000, providing competition to Courtaulds. Lenzing is also facing profitability problems because of the weak market and the Asian financial situation. The company noted that there was "no substantial movement in the international viscose fibres market in the third quarter of 1997." It noted that its joint venture, Bacell SA in Brazil, successfully produced and sold "premium quality" dissolving pulp in the third quarter, but that lower-than-expected volumes and prices (including problems related to over-valuation of the Brazilian currency against the U.S. dollar) were leading to negative results for 1997. Lenzing has had a series of cutbacks in the past year in connection with a restructuring, and said it will be able to eliminate losses by 1998.

Sappi Ltd.'s Sappi Saiccor and Borregaard Industries Ltd. recently signed a joint venture agreement for a R100 million lignosulphonate plant at Sappi Saiccor in KwaZulu-Natal province, South Africa. The 55,000 mtpy plant will remove lignosulphonate from the effluent stream. The 600,000 mtpy Sappi Saiccor dissolving pulp mill is the world's largest single source of lignin, producing about 470,000 mtpy of lignosulphonate. Borregaard, the chemical division of the Norwegian Orkla Group, is the world's leading processor of lignosulphonate, a binder and dispersant used in concrete, for oil drilling, brick making, ceramics, and in animal feeds.

Lower growth rate for world pulp, paper

For the six-year period 1996-2001, capacity for the pulp and paper industry worldwide is projected to reach 541 million metric tons by the year 2001, according to the Food and Agriculture Organization of the United Nations. Paper and board capacity is projected to increase at an annual rate of 1.8% or 30.1 million metric tons and paper-grade pulp capacity by 1.5% per year. Both sectors' growth rates are lower than that predicted in the 1995-2000 survey: Pulp had been projected to grow by 19.1 million metric tons or at an annual rate of 1.8% and paper and paperboard by 36.9 million metric tons or 2.3% a year.

The survey now predicts capacity to manufacture woodpulp for papermaking to reach 197 million metric tons by the year 2001 (slightly higher than the previous survey prediction of 196 million metric tons) and 344 million metric tons for paper and paperboard (compared with 337 million in last year's survey).