NEWS SCAN

Uncoated free-sheet capacity strong in Asia

The installation of 15 new paper machines in Asia and the Pacific Rim to manufacture uncoated free-sheet papers is the driving force for the grade's growth worldwide through the year 2000, according to the most recent review by Pulp & Paper Project Report. Capacity additions in Asia will be responsible for adding about 83% of the total free-sheet capacity being installed worldwide.

Project Report reviewed uncoated free-sheet capacity changes worldwide from 1998 forward and detailed approximately 4.2 million mtpy of capacity expected to be added from 1998 through 2000. This follows the installation of almost 800,000 mtpy of new capacity worldwide that began production in 1997.

In North America, the start of Willamette Industries Inc.'s new 300,000 tpy paper machine No. 2 from Valmet earlier this year follows the installation of Boise Cascade Corp.'s new Valmet machine in second-quarter 1997 as the only major capacity additions.

These capacity gains are offset by the shutdown of several machines by International Paper Co. in 1997. The American Forest & Paper Assn. forecast a gain of 294,000 tpy for the period 1998 through 2000, for an average annual growth rate of 1.3%. U.S. capacity is expected to be just over 15 million tpy in 2000.

Installations of new capacity in Asia and the Pacific Rim far exceed growth in any other region, totaling over 3.5 million metric tons of uncoated free-sheet. However, since the review was published, Asia Pulp & Paper Co. has announced the suspension of project development for two installations by its subsidiary Indah Kiat due to financing difficulties.

President Clinton signed an executive order mandating that federal agencies buy printing/writing paper with at least 30% recycled post-consumer recycled fiber. The order was expected and takes effect Dec. 31. In 1993, Clinton signed an order mandating use of paper with 20% recycled content. n

Great Lakes and American Fiber merge

Two financially troubled market deinked pulp companies-Great Lakes Pulp Co. and American Fiber Resources L.P. (AFR)-have merged into one company with 350,000 metric tons of capacity and a new outlook. Shareholders approved the merger Aug. 27 under a yet-to-be-named holding company.

Great Lakes president and CEO Lars Dannberg said in a press release that the merger "positions the companies to achieve preeminent status in the deinked market pulp industry." "We believe this is the first step toward consolidation of this fragmented industry," he added, referring to the market deinked pulp sector.

The merger will create unspecified cost synergies in terms of furnish purchases and chemicals used at the two mills (a 144,000 mtpy mill in Menominee, Mich., and a 210,000 mtpy mill in Sanford, W.Va.) as well as savings on transportation, the company said. Mead Pulp Sales will sell the pulp made at the two mills. The two mills will operate independently, but be managed by the holding company.

The two mills are two of only three air-dried market deinked pulp operations in North America. A fourth one is in France. The use of market deinked pulp has bee n slow coming into an oversupplied pulp market the last two years, but Great Lakes' executives believe the business will grow for market deinked pulp. The company would not release planned sales revenue at the two mills for 1999.

Recovered fiber. Both the Meno-
minee and Sanford mills count on mixed office paper as the sole furnish for making bleached deinked market pulp. The pulp is sold to producers of coated and uncoated printing/writing papers. The company expects to export 25% to 40% of its production, with Europe being the No. 1 offshore market, followed by Asia and South America.

Both mills will operate based on Great Lakes' process for turning mixed office paper into deinked market pulp. The Great Lakes mill has run continuously since starting up in July 1996. The American Fiber mill was idled in January this year, but was started up May 15, after capital improvements. Some capital improvements were also put in on the wastewater operation at the Menominee mill last year.

The merger came together after Great Lakes came out of Chapter 11 bankruptcy proceedings earlier this year with "substantial new capital and debt facilities," Dannberg said. AFR had also filed for bankruptcy protection last year. Cerberus Partners L.P. of New York and Oaktree Capital Mgt. LLC of Los Angeles are the majority shareholders for the new company and played key financial parts in helping both companies solve their financial problems. The two investors own 100% of American Fiber and about 85% to 88% of Great Lakes. n

Abitibi acquires
Snowflake mill

Abitibi-Consolidated Inc. announced it will purchase Stone Container Corp.'s Snowflake Newsprint Co. for $250 million, bolstering its position in the southwestern U.S. through the region's only newsprint mill. Abitibi-Consolidated said upon completion of planned improvements to the Arizona mill, that Snowflake will be the lowest delivered cost mill in its newsprint group.

The company said the acquisition is a "logical fit" because it already markets the tonnage produced there and because it fulfills the company's stated strategy to grow through acquisition in North America, according to Susan Rogers, vice president of communication for Abitibi-Consolidated. "This acquisition...will provide better returns than our cost of capital and will be immediately accretive to our earnings," said Abitibi-Consolidated president and CEO Jim Doughan. "In fact, it will be more accretive than a share buy-back, even at our currently depressed share price."

The Snowflake mill has capacity to produce 287,000 mtpy of 70% recycled newsprint on two Beloit paper machines. The transaction also includes a 38-mile railroad and a 56-MW power plant which provides the mill with 95% of its energy requirements. Abitibi plans to increase the recycled content of the newsprint to 100% by 1999 and invest about $25 million in capital improvements which will include additional deinking capacity and machine speedups.

Stone Container will retain ownership of a 124,000 mtpy corrugating medium machine located at the mill. Abitibi-Consolidated will operate the machine for Stone, which uses the output to make corrugated boxes. Earlier this year, Stone converted the machine's production from kraft linerboard to 100% recycled corrugating medium.

The transaction was expected to close by the end of the third quarter subject to the receipt of all regulatory approvals and conditions set out in the definitive agreements.

Texas mill expects to

break ground soon

Southland Newsprint L.P. said it expects to break ground on the first phase of its proposed greenfield newsprint mill near Longview, Texas, by the end of the year, according to John Turnage, a principal of the company. Financing for the first phase of the project was expected to close by the end of October with construction immediately following. Construction will be done in two phases. The first phase, which will take about 18 months to complete, calls for installation of a 245,000 mtpy paper machine. Furnish for the newsprint will come from a combination of old newspapers (ONP) and a thermomechanical (TMP) pulp line. The machine will produce both standard and enhanced newsprint grades with a recycled content of up to 30%. A planned second phase of construction will add another 245,000 mtpy paper machine. n

Westvaco goes to China, consolidates

Westvaco Corp. said it plans to acquire a 45% stake in a new folding carton manufacturing facility located in Guangzhou, China, about 120 miles from Hong Kong. The plant is owned by a Chinese subsidiary of Shorewood Packaging Corp. Shorewood's cost to develop and start up the Guangzhou facility will be approximately $45 million when completed, including working capital. Upon closing, Westvaco will acquire 45% of Shorewood's Chinese operations for approximately $25 million, representing 45% of the total cost plus an additional $5 million. Through May, Shorewood had invested approximately $26.6 million in the facility, representing costs associated with the lease of land, construction of a 125,000 ft2 building and purchase of printing and converting machinery and other expenses associated with the start-up.

Shorewood will have day-to-day management responsibility for the plant and will work closely with Westvaco on marketing programs and new product development. The Chinese plant will be capable of printing high-quality gravure and lithographic cartons, similar to Shorewood's North American operations. Shorewood expects to supply packaging to many of its existing multinational customers doing business in China as well as local Chinese customers.

Westvaco first entered the Chinese market nearly 20 years ago and currently exports bleached paperboard, printing papers and specialty chemicals to a variety of customers in the country. International business accounts for approximately 25% of Westvaco's sales and the company has customers in more than 70 countries.

Separately, Westvaco announced that it plans to consolidate certain operations in its consumer packaging division, resulting in net job cuts of 170 to 180 employees. The centerpiece of the consolidation plan is the expansion of division operations in Richmond, Va., and the downsizing of operations in Newark, Del. At Richmond, the company will install a new offset printing press and create a center for graphic packaging and structural design. The press installation and plant expansion will begin immediately. These initiatives are expected to create approximately 30 new jobs in Richmond.

Certain administrative support activities currently performed in Newark will be relocated to the division headquarters in Richmond. In addition, some of the Newark plant's equipment will be relocated to Richmond. The reconfiguration of operations in Newark is scheduled to be completed over the next few months. Over that period of time, the plant's workforce of 270 employees will be reduced to 60 to 70 employees. n

Gulf States won't
add to Alabama mill

Gulf States Paper Corp. said it is suspending plans to add a second bleached paperboard machine at its pulp and paper mill in Demopolis, Ala. The company said existing industry capacity, both domestic and worldwide, was sufficient to supply potential increases in demand. Gulf States' bleached board is used primarily for foodservice and consumer packaging.

In 1995, the company began preliminary engineering work for a second paperboard machine that would produce up to 850 tpd, more than doubling the mill's current capacity of 750 tpd of solid bleached sulfate (SBS) board. But in 1997, Gulf States entered a joint venture agreement with Georgia-Pacific Corp. (G-P) that essentially merged the bleached paperboard output of G-P's Crossett, Ark., mill and Gulf States' Demopolis mill.

All of the SBS made at the two mills is now produced with the same technical specifications and sold under Gulf State's CartonMate trademark. Both mills are ISO 9002 registered facilities.

"Our joint venture with Georgia-Pacific has given us an adequate paperboard supply to serve both our internal plants and external customers," said Mike Case, executive vice president and COO of Gulf States. "Our market research has clearly shown that this is not the time to move forward with a major expansion project," added Case. n

Fold-Pak, Dopaco
in food venture

Fold-Pak Corp., a subsidiary of Gulf States Paper Corp., and Dopaco Inc. of Downington, Pa., have formed a joint venture to handle the manufacture and sale of paperboard carryout food containers. Both companies currently produce the popular containers for restaurants and take-out food establishments. Gulf States, which operates a 750 tpd bleached paperboard mill in Demopolis, Ala., completed the acquisition of Fold-Pak in March, greatly expanding its paperboard packaging business. Dopaco is a leading independent manufacturer of packaging products for the fast food restaurant industry.

Under the joint venture agreement, Dopaco's manufacturing equipment for food containers will be relocated to Fold-Pak plants in Columbus, Ga., Fresno, Calif., and Hazleton, Pa. All food containers will be manufactured and sold by the new joint venture, GSD Packaging LLC. Dopaco's Horizon and SmartServ brand packaging will be added to the existing Fold-Pak line of products. n

Champion sells
plant to Tenneco

Champion International Corp. announced that it has sold its ovenable paperboard tray converting facility located in Belvidere, Ill., to Tenneco Packaging for $22.5 million. As part of the transaction, Champion agreed to supply bleached paperboard to the plant for three years. Tenneco currently makes ovenable paperboard trays and containers at a facility in Columbus, Ohio. Tenneco said the Belvidere plant generated sales of $27 million in 1997.

The operation produced approximately 550 million trays (about 13,000 tons) in 1997, sold primarily to frozen food processors, but also to the fast-food, supermarket, and bakery markets. Belvidere's paperboard has been supplied by Champion's Canton. N.C., paper mill and the Waynesville, N.C., extrusion coating facility. The plant has 155 employees.

Last year, Champion announced its intention to sell the Belvidere plant and other non-core assets. The pulp and paper mill in Canton, N.C., the Dairy Pak liquid packaging business and the Waynesville coating facility are also part of the planned divestitures. n

Containerboard

Temple-Inland
mill damaged

Temple-Inland Inc. said the turbine at its Orange, Texas, linerboard mill was damaged Sept. 18 as a result of a power surge from a lightning strike. The company said it was anticipated that the 1,800 tpd mill would be repaired and fully operational by the end of the third quarter; however, it estimated that the negative impact will be approximately $4 million, including the cost of rebuilding. The 645,000 tpy plant represents about 30% of Temple-Inland's total estimated linerboard capacity of 2.1 million tpy. n

Solvay to add
board machine

Solvay Paperboard L.P. plans to start a 200,000 tpy recycled containerboard machine by third or fourth-quarter 1999. The machine will go in at the mill in Syracuse, N.Y., and join the No. 1 machine that can produce about 165,000 tpy. The company plans to increase total containerboard capacity at the mill to about 400,000 tpy in a couple of years. n

Southern Bag
expands multiwall

Southern Bag Corp. recently announced the purchase of Charleston Packaging Co. from Tate & Lyle North American Sugars Inc. (formerly Domino Sugar Co.). Terms of the sale were not disclosed. Charleston Packaging produces both multiwall paper bags and flexible packaging at a facility in Charleston, S.C. They are a leading supplier of consumer and other styles of bags for such products as sugar, charcoal, and flour.

Southern Bag, headquartered in Madison, Miss., is the third-largest manufacturer of multiwall paper bags, widely used for pet foods, charcoal, fertilizer, cement, and commodities such as sugar, flour, and salt. A year ago, Southern Bag acquired International Paper Co.'s multiwall bag operations, adding two bag plants in Wilmington, Ohio, and Pittsburg, Kans., as well as most of the assets of a plant in Camden, Ark.

The company has additional facilities in Yazoo City, Miss., Pine Bluff, Ark., Hamlet, N.C., Valdosta, Ga., and Monroe, La. It also owns Graphic Mpressions in Anniston, Ala., and Hood Flexible Packaging, a producer of polyethylene plastic film and plastic bags. Recently, Southern Bag completed the purchase of All-Pak, a flexible packaging firm located in Atlanta, Ga. n

Irving hit with new charge at St. John

Environment Canada has dismissed a charge against Irving Pulp & Paper Ltd. but has brought another in its place. The agency recently dropped a charge alleging that the effluent discharged from the company's Saint John, N.B., mill was not in compliance after Irving "redoubled its efforts, made additional investments, and came into compliance," said Dave Aggett, manager of the office of enforcement for the environmental protection branch of Environment Canada.

Recently, Irving completed implementation of a reverse osmosis system to clean up effluent released from the mill.

Close on the heels of the dismissal, Environment Canada has levied a new
charge against the company at the same mill. The agency said the company violated Canada's Fisheries Act by failing to prevent a spill of a deleterious substance into the mill's sewer system in March. Aggett said the material, which is toxic to fish, ended up in the Saint John River. Environment Canada brought the charge, which carries a maximum penalty of C$1 million, on Aug. 26. The company is expected to enter a plea in November. n

On job injuries,
illnesses decline

The incidence rates of injuries and illnesses in primary and converting operations in the pulp and paper industry dropped for the fifth consecutive year in 1997, according to data from the American Forest & Paper Assn.'s (AF&PA) summary of occupational injuries & illnesses. The incidence rate of total cases in 1997 for the 221 reporting pulp, paper and paperboard mills stood at 5.65 compared with 6.13 in 1996. For the 569 converters of paper and paperboard reporting, that number stood at 6.23 in 1997 compared with 6.78 in 1996. According to the AF&PA, incidence rates for the majority of converters reporting (70.5%) and the majority of pulp, paper and paperboard mills reporting (76.5%) fell below the U.S. reported average. The incidence rate represents the number of injuries and/or illnesses per 100 full-time workers.

The rate of lost work day cases has declined slightly in recent years. In the converting sector, the rate of lost work day cases for reporting companies in 1997 was 3.32, down from 3.55 in 1996 and 4 in 1995, the AF&PA said. The rate of lost work day cases at reporting pulp, paper and paperboard mills stood at 2.29 in 1997, down from 2.45 in 1996 and 2.89 in 1995. Lost work day cases involve days away from work, days of restricted work activity, or both.

There were six fatalities at reporting pulp, paper and paperboard mills in 1997, the same as in 1996, according to the AF&PA. The converting sector logged one fatality in 1997, down from two in 1996 and 1995.

Planned Smurfit-Stone merger would create $8 billion linerboard concern

The planned merger of Stone Container Corp. and Jefferson Smurfit Corp. (JSC) was expected to be voted on by the companies' shareholders in late October. If approved, the deal creates a packaging giant on the world market with annual sales of an estimated $8 billion. A proxy outlining the deal as well as the financial and operational specifics about the companies was sent to shareholders in late September.

Wall Street analysts have favored the merger, saying it could help consolidate the fragmented, 37 million tpy U.S. containerboard industry, as well as the world market. More than 35 U.S. companies make the benchmark grade linerboard, including more than 12 with individual liner capacity of less than 280,000 tpy.

If merged, the new Smurfit-Stone Container Corp. would control a significant market share with 7 million tpy of containerboard capacity at 23 mills along with 75 billion ft2 of packaging production at 135 plants. The company also would have about 700,000 tpy of containerboard capacity in Canada and Mexico. Including the capacity of containerboard mills run by Smurfit's Jefferson Smurfit Group plc in Dublin, Ireland, the entire Smurfit-Stone Container operation would control 11% of world containerboard capacity. The merged Smurfit-Stone Container would operate 20% of U.S. total containerboard capacity, including 21% of linerboard capacity and 16.6% of corrugating medium capacity.

The Jefferson Smurfit Group would own 34% of Smurfit-Stone Container, if the merger was completed. The public would own 57% and a Morgan Stanley Merrill Lynch equity fund would own the remaining 9%. Morgan Stanley Merrill Lynch is a key shareholder of JSC stock. Morgan Stanley has a 36% share of JSC from a leveraged equity fund and plays an important role in the shareholders' vote.

In related news, Stone Container recently announced that its subsidiary in Canada, Stone Container Canada Inc., would pay C$185 million in cash (about US$120 million) to MacMillan Bloedel Ltd. for MacMillan Bathurst, the second largest producer of corrugated containers in Canada. Stone Container made the move as part of its effort to focus the business on paperboard and packaging.

MacMillan Bloedel and Stone Container each had 50% stakes in MacMillan Bathurst. Initially, MacMillan Bloedel offered to buy Stone Container's share for the C$185 million. But Stone Container decided it would rather buy out MacMillan Bloedel's share. After making the deal with MacMillan Bloedel, Stone Container's Canadian subsidiary sold the 50% share in MacMillan Bathurst to a Canadian subsidiary of the Jefferson Smurfit Group.

Shorewood, Greif Bros. report results

Shorewood Packaging Corp. reported record revenues and earnings for the 13 weeks ended Aug. 1, representing the company's first quarter of fiscal 1999. Revenues for the first quarter were $115.4 million compared with $100.6 million for the corresponding period a year ago, an increase of 14.7%. Earnings before the cumulative effect of a change in accounting rules amounted to $6.8 million compared with $6.2 million a year ago. Net earnings were $3.8 million following a pre-tax write-off of $3 million or previously deferred costs related to the start-up of a new printing plant in China.

Greif Bros. Corp. announced results for the three months and nine months ended July 31, representing the third quarter of fiscal 1998. Net sales rose 30.9% to $218.6 million for the third quarter, including results from the industrial container division of Sonoco Products Co. acquired on Mar. 31. Earnings before a restructuring charge were $12.2 million compared to $4.7 million a year ago. Including a previously announced pre-tax restructuring charge of $27.5 million, the company reported a net loss of $4.5 million for the current quarter.

Gibraltar Packaging Group, Westport, Conn., reported a net loss of $15.2 million for its fourth fiscal quarter ended June 27. The loss includes a $14.1 million charge for the write-down of the Niemand spiral tube operations, which the company plans to sell. In addition, the loss includes a charge of $531,000 reflecting the write-off of previously capitalized deferred financial costs related to the refinancing of its senior debt. Before these charges, the net loss would have been $599,000. This compares to net income of $124,000 in the fiscal fourth quarter of 1997. Sales in the fourth quarter were $19 million, compared with $19.6 million a year ago. The net loss for the full year was $17.2 million on sales of $75.9 million, compared with net income of $225,000 and sales of $74.7 million in 1997.