Changing the nature of the beast
What better thing is there to do on a hot summer day than to relax with a nice cool beverage in the shade of a tree by a lake sharing the companionship of family and friends? Okay, maybe doing the same thing in an air conditioned building is more comfortable for some. But there’s nothing to be gained by endlessly complaining about summer heat and humidity. In most places, it wouldn’t be summer without them.
Simply recognizing the elements of a situation that are germane to that situation—like summer heat and humidity—obviously does nothing to change them. However, I believe that understanding such elements can be a big help in working with and around them.
For example, my first car was an orange 1972 Ford Pinto station wagon—not exactly what every teenage boy dreams of driving around town. Like Tim Allen, I wanted hotrod power. And despite my wanting to transform the car into the “Power Pinto” that I dreamed of, the best I could do was minor cosmetic changes. I did consider radical modifications—welding the doors shut, painting an “01” on the door and a Confederate flag on the roof, and installing an air horn that played “Dixie”—to get the car closer to the hotrod of my dreams, but decided that I would simply have created a ridiculous looking Pinto. The basic nature of that beast could not be changed.
CHANGING THE PULP AND PAPER BEAST. Starting on page 43, we report on the current status and outlook of the North American pulp and paper markets. And once again, the North American industry struggles through yet another difficult year. Prices for many grades remain weak and a number of companies have taken downtime in an effort to balance the markets and keep prices from falling further.
Not one of these issues is new, as the industry has struggled with each of them for decades. Some might say that these issues are a part of the very nature of our cyclical industry—that no matter how much effort is made, overcapacity and weak pricing will continue to be dominant issues.
As a result, the pulp and paper industry has generally been viewed by investors and Wall Street as a financially underperforming segment of the business world. And the financial results have certainly matched their views. Consequently, in the past few years, there has been increasing and unrelenting pressure for pulp and paper companies to break free of the chronic problems of the industry—to change the nature of the beast.
Obviously such changes cannot be made overnight. But North American companies such as International Paper Co., Georgia-Pacific Corp., Weyerhaeuser Co., Bowater Inc., and Abitibi-Consolidated Inc., just to name a very few, are working diligently towards improving the long-term business climate of the pulp and paper industry.
Their efforts include more mega-mergers and acquisitions, new strategic partnerships, and selling non-core production facilities. Additionally, tough decisions to permanently shut aged mills that are no longer competitive in the global marketplace are being made. Many producers are committed to needed downtime to maintain pricing levels. And companies are showing fiscal restraint by limiting capital expenditures to record low levels.
These concerted efforts appear set to improve at least the short-term outlook of the industry. A number of experts believe the North American industry will experience better market conditions next year. This is good news for all of us.
IS IT ENOUGH? But will these efforts really bring about long-term change or is the industry just on the natural upswing in its historical cyclical pattern? Obviously, only time will tell but I’m not convinced that enough has been done to date to change the beast.
For example, I don’t believe that enough aged and high-cost capacity mills and machines have been permanently closed. If a market pulp mill can’t be profitable at $500/mton, then it should be permanently closed. There is excess global capacity, and Asian and Latin American market pulp mills will continue to hold significant cost advantages over these high cost North American mills.
It’s a tough decision for a company to close a mill in a town where the mill has been there for generations and is a primary, if not the only major, employer. There are many such mills across the U.S. and Canada. I grew up in such a town. No company makes a decision to shut down such a mill easily. But for the sake of our industry, I believe more of these tough decisions need to be made today. Otherwise, the beast will continue to be a beast of burden.
Send your comments to kjensen@mfi.com or fax (415) 278-5389.
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