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Several major trends are reshaping the coated and uncoated paper business, as well as the coated board sector. Among these are intense competition to lower costs while improving quality, a major wave of merger and acquisitions, the unprecedented scale and low operating costs of new production facilities outside North America, a move to single sourcing of raw materials, and increasingly intense inter-grade competition.
In turn, these factors are driving major changes in the coating chemicals business. All of these issues will be examined in a series of articles in Pulp & Paper in coming months. The focus of this, the first article in the series, is a general review of key trends in printing papers, and in turn the use of coating and filler pigments. Among the pigments to be covered here are kaolin, calcium carbonate, talc, silica and titanium dioxide. The markets to be examined more closely in the future that consume these raw materials include coated groundwood, coated freesheet, uncoated SC grades, soft-nip calendered grades, newsprint, uncoated freesheet and coated paperboard. Among the key areas to address in addition to developments in pigments are trends in coating binders, coating equipment and finishing equipment (such as soft-nip calenders).
In order to begin to delve into all of this, P&P talked to several key suppliers as part of this article. Among those contributing were: Jan Jeffries, Marketing Director, and William Goble, Enterprise Director-Paper Kaolin, Engelhard; Doug Carter, Global Business Leader—Paper, J.M. Huber; Chris Boothby, PCC Business Manager and Susan Boss, Market Manager-Groundwood Grades, ECC; Neil Gussman, Millennium; John Dobson, V.P. Europe and Mitch Koppelman, V.P. Research & Development, Specialty Minerals.
PAPER GRADE MARKETS. Filler and coating pigments overall continue to exhibit good volume growth, as world coated paper and board production expands at solid rates. Overall, coated paper demand globally is expected to continue to expand at 3% to 5% annually, depending on the grade, with wide ranges in growth rates between various regions of the world. Current global coated paper capacity is estimated at about 40 million mtons/year. Based on 1997 data, world coated paper production was about 35 million mtons, with 20 million of this freesheet grades. Overall coated paper demand has grown about 4% annually on a global basis over the last 15 years, with growth of 4.6% for freesheet and 3.6 % for groundwood grades.
Paper demand continued to grow in 1998, although growth varied widely by grade and region, with major growth in coated freesheet globally, and more subdued growth in LWC due to competition from SC papers, and the slow growth in the more mature North American market. U.S. coated paper shipments slipped slightly in 1998 due to higher imports and a drop in LWC shipments. Coated paper output in Europe rose solidly in 1998, owing to an increase in exports and domestic demand growth for most grades. The demand for SC grades is also expanding, particularly in the U.S., as is use of coated paperboard as more and more applications go beyond just asking for a brown box. Thus, the overall outlook for these grades, and the pigments and chemicals that are an integral part of them, remains positive.
MANY OLD NAMES NOW GONE. However, while volumes may be growing, there is a tremendous amount of upheaval in the business on the producer and on the supplier side. Consolidation is of course the biggest structural change impacting the business. Major paper company mergers have consolidated the coated paper, uncoated paper and coated board business around the world. Among the largest impacting the printing and writing paper business are the recent acquisition of Union Camp by IP; Consolidated Papers purchase of Repap USA, Sweden’s UMP-Kymmene’s acquisition of Blandin and joint venture with Indonesian company April, and South Africa-based Sappi buying Netherlands-based KNP-Leykam. Most of these moves are aimed at focusing companies on what they consider to be their key business or segment.
Similarly, the coating and filler pigment business has seen large-scale change due to a spate of mergers and acquisitions. The most recent move is by Paris-based Imetal, which acquired English China Clays plc (ECC) of Roswell, Ga. Imetal, subject to regulatory approval will also create a new Pigments & Additives Group by combining Dry Branch Kaolin, ECC, Georgia Marble, and Rio Capim Caulim (Brazil). This would make the company the largest producer of kaolin. Huber Engineered Materials, a sector of J.M. Huber Corp., supplier of engineered minerals and specialty chemicals, has acquired European-based Faxe Paper Pigments A/S (Denmark), a world-wide supplier of precipitated calcium carbonate (PCC). Faxe Paper Pigments was purchased from Belgium-based Groupe Lhoist. Other restructuring that occurred earlier includes the Mineral Technologies acquisition of the PCC business of Rhodia, and Dry Branch Kaolin’s (DBK)’s purchase of Nord Kaolin
In titanium dioxide, due to the recent purchase by Huntsman of Tioxide, all the producers are now U.S.-based. They include Dupont, the top producer, No. 2 producer Millennium Inorganic Chemicals, in addition to Kerr-Mcgee.
KEY GRADE TRENDS. Grade by grade usage trends, and in turn the drive by all producers to lower cost while offering printers improved printing substrates, are the key factors driving raw materials demand. For example, the use and production of SC grades is expected to continue to grow in North America, as SCA and SCB grades, and lower quality soft-nip calendered grades that approach SC papers in quality continue to expand in use. Typically, SCA production in Europe uses significant amounts of carbonate, while in North America, it remains largely a clay-based product. The exception is the use of precipitated calcium carbonate (PCC) by Madison Papers in its SCA grades produced at its mill in Madison, Maine. The other major producers, Stora Port Hawkesbury in Canada and Lake Superior (Consolidated Papers), utilize clay fillers. It’s reported that 5 machines worldwide produce SCA papers using carbonate.
SCB in Europe also uses some carbonate, while in North America a variety of pigments are used, although kaolin is believed to be the predominant one. However, a number of observers believe that the push to higher brightness will invariably lead to increase use of carbonates in North American SC grades of all levels. However, it was also pointed out that in some applications mills are using other pigments and that carbonate may not be the way to go for all mills. For example, in some sheets that already have inherent high brightness due to the quality of the pulp used (notably in Canada), other pigments can and are used.
One view on the push to carbonate use in SC grades here in North America is that if a mill is pushing to meet LWC brightness, then the advantages of carbonate become larger. The choice in pigment also is very equipment dependent, and the existing mill base in North America varies widely in terms of what they have, and the size and scope of operations. A common clay in use in SCB mills is a coarser water washed filler grade.
Adding to the complexity of projecting pigment use by grade is that the selection of the pigment, or pigment blend, depends on several factors beyond just whether or not the mill is or wants to run at an alkaline or pseudo-alkaline pH. For example, while there is certainly a push towards expanded use of carbonate, particularly PCC, a satellite plant makes the most sense where it can be located at a large mill and dedicated to its use. In the case of smaller mills, for example, newsprint or groundwood paper mill thinking about using carbonate other cost/performance factors come into play. If for example, the mill is integrated, a PCC plant may be more justifiable since lime and CO2 (both needed for PCC) are already being purchased. If not, then it may simply be a matter of cost that the mil look to other ways to meet targets for brightness. One source suggested is that in some areas where there are clusters of small to medium size mills, a merchant PCC plant could make sense, i.e. 2 or more mills would share its output.
Probably the most talked about trends in paper grades is the emerging competition between high quality uncoated SC grades and lightweight coated groundwood. Traditionally, most of this battle in the U.S. was fought in the insert and flyer market. LWC retained its predominance in the big publishing market (magazines). However, new improved SC grades, referred to generically as SCA plus, are beginning to make inroads into magazine publishing. For example, Family Circle and McCall’s magazines recently converted to Lake Superior Paper’s (acquired by Consolidated Paper) Expedition SCA Plus grades. Most observers expect this to continue, as the lower weights of SCA grades, and its lower cost are advantages. However, the degree to which this replacement for LWC will occur varies widely depending on who you talk to. One source forecasts that uncoated mechanical use in magazines will approach 14% of demand by the end of this year and into next year. This compares to levels of about one-third in Europe. In contrast, this would mean that LWC’s share of the magazine market would fall from levels of over 70% in the early nineties to about 65%. Projections published in American Printer magazine expect overall SC use in North America to reach 1.7 million tons by 2000.
Among the key trends in LWC is a continuing move to higher brightness and gloss, and to lower weights, as noted below. One source noted that an emerging trend that might be 3 years away is for LWC producers to concentrate more on printed vs. sheet gloss values, and this would change some of their formulation decisions.
Certainly the remaining big areas for carbonate use to expand are SC and LWC grades in North America. Coated woodfree production, at least at large mills, is almost all based on carbonate at this point. Among the last to switch are two existing large coated freesheet mills.
In coated groundwood, a number of mills in North America have gone over to using carbonates. These mills are mainly located in the midwest and or northeast. Southern coated groundwood mills are the major ones that haven’t converted due to issues with the use of southern pine. One source estimates that 30 to 38% of coated groundwood production in the U.S. is neutral or alkaline and running carbonates. Views varied somewhat on when these mills might switch, but most see it being 1 to 2 years away.
Coated woodfree use in the magazine market is also expanding, according to various market estimates. The share held of the magazine market in Europe held by freesheet is forecast by one analyst (1) to rise from about 12% in 1998 to over 15% by next year, and in the U.S. to hold steady at about 20% of the market.
Lower Weights. The drive to lower weights continues, as this is a key element in markets such as catalogs and magazines, due to the cost savings in postage. For example, from 1991 to 1997, U.S. shipments of No. 5 coated grades showed a marked increase in the 42 to 50.9 g/m2 range. At the same time, as a percent of shipments, grades in the 60 to 63 g/m2 range were dropping, while the share held by 54 to 56.9 g/m2 nearly doubled from under 5% of shipments to over 10%. Average LWC basis weights in North America and Europe have dropped steadily since the 1970s.(1) Weights in Europe on average are considerably lower than in the U.S. Estimates by Temanex for 1998 show that the average basis weight in Europe is about 56 g/m2, with the U.S. somewhere near 57 g/m2. However, the spread in average weights has narrowed considerably since the early 1990s, when for example it was on the over of almost 4 g/m2. Similar data from other sources state that the average finished No. 5 weight in the U.S. dropped from about 59 g/m2 in 1980 to just under 59 in 1990 to just under 58 g/m2 in 1997.
Of course the tradeoff is that as weight drops, so does opacity, and this is one area where several suppliers mentioned considerable work is being done to offer pigments with improved particles size distributions and other properties that can provide coverage at lower weights.
One observer noted that in recent years brightness levels have moved up gradually, by say one-half a point per year. Over the next year or so a significant he expects a step up in brightness in paper grades could occur.
PIGMENT DEVELOPMENTS. With all of these changes occurring in the use of printing and writing papers, how are pigment suppliers responding with new products to meet these needs? One trend in the kaolin business is an increasing emphasis on value added products. As one producer noted, the standard filler grades are becoming much less important, and higher brightness, higher quality products are really the future for kaolin producers. Kaolin producers are using new methods to produce products with different particle size distribution and brightness.
Global usage patterns vary widely of course, and in both North America and Europe, there has been a major shift in the composition of the pigments used by paper mills. The biggest trend has been the emergence of calcium carbonate. On an overall basis, including coating and filler use, the paper industry used about 18 million mtons of pigment in 1997. Of this, 54% was clay, 26% GCC, 9% PCC.(2)
Kaolin use has been impacted by the shift to carbonate use, first by the large-scale conversion of uncoated freesheet in the U.S. to PCC use, and now by increasing inroads by carbonate in groundwood containing grades. The overall outlook for kaolin pigments is for fairly flat volume growth in the next five years, on the order of 1% annually, owing to substitution trends and other factors. Due to this, and to the development of sources in areas such as Brazil, there is currently plenty of kaolin available.
Calcium carbonate use now accounts for over half of filler pigment use in both Europe and North America, according to various sources. In Europe, where 20 years ago kaolin accounted for over 2/3 of demand, it now accounts for only about 40% of total filler use. In NA, clays were used in over 90% of filler use, but now only account for about one-third.
FIGURE 1: The mineral consumption of Western Europe and North America are compared over nearly two decades.
The approximate breakdown of pigment use is illustrated in Figure 1 and 2, based on an article published in the May 1999 issue of Pulp and Paper International.
In coated groundwood papers, European papers typically have higher brightness due to brighter fibers and expanded use of calcium carbonate pigments.(1) The growth in neutral groundwood papermaking in NA from 1987 to 1996 shows that by 1996, about 1800 tpd of LWC was running neutral. It’s projected by one source that by 2002, about 40% of all groundwood papermaking in NA will be neutral. Regardless of the exact forecast for conversions, it’s likely to expect that more and more NA LWC mills will go to a type of wet end chemistry that permits them to use calcium carbonate. The exception to this move is mills in the southern U.S. that make LWC. Mills in this region have the added issue of high pitch levels in their furnish that can cause problems in conversion. PCC suppliers have developed specially treated products to minimize alkaline darkening in groundwood papers.
On the other end of the quality spectrum, i.e. coated freesheet No. 3 grades in the U.S., competition also has increased for LWC grades. Data on the magazine market show that coated freesheet papers have increased market share in the magazine papers market since 1993 in both the U.S. and Europe.(1)
DIGITAL IMAGING PAPERS. There is a lot of interest in the digital imaging papers market, despite it’s the fact that its miniscule compared to the overall fine paper market, owing to growth rates that approach can 40% annually. There are different quality ranges, ranging from glossy high end products that are coated, mid-range grades that might be pigmented, to low end standard uncoated grades. High quality coated ink jet grades have traditionally been produced at converting operations using silicate pigments, rather than on the papermachine. Silica pigment producers include J.M. Huber, Grace Davison and PPG.
This is due to the fact that the rheology of silica pigments makes it very hard to run on machine due to limits on solids. For example, 18% to 20% solids are normal vs. the 60% level need on a papermachine coater. However, both kaolin and carbonate producers are targeting the digital imaging area with new products, and research and development efforts.
For example, Engelhard has two new kaolin-based products targeted at the ink jet market that are in commercial use: Digitex and a higher brightness version, Digitex 1000, targeted at wide format markets. One mill is using this pigment on machine in the U.S. and two in Asia.
Carbonate producers are also targeting this area. A new product offered by Specialty Minerals in Jet Coat 30, designed for use in non-impact digital photography papers. An advantage of the product is that is lowers coat weight thickness vs. a silica based coating, and thus has less pore volume, according to the company. This finer pore structure allows water to penetrate the sheet. ECC’s Astra-Jet is a recently commercialized Kaolin product targeted at this area.
PURCHASING. While there is a general trend towards single sourcing, it’s not completely a one-way street, according to some. And it’s not completely clear that it’s in the best for all. A few major producers are continuing to use more than one supplier, albeit they may give one the bulk of the business. IP was mentioned as one.
While single sourcing, or at least the use of fewer suppliers, is the direction things seemed to be headed, opinions on how good this is vary. While bigger suppliers can offer a broader range of services to key customers, there is a question of how innovation services in this system. For example, with the high cost to develop new products, if a supplier is locked into a single source arrangement, can they really get the full benefits of a new product or advance in technology.
An interesting point mentioned by several people is that Western European mills moved more quickly to rely upon the supplier side for technical development, product development and R& D efforts. So, while some are concerned about the industry’s reliance on this, most agreed the European mills are now more technically advanced.
Kaolin supply is now concentrated in a relatively small number of producers. The largest is the new combination of ECC and Inmatel, which combined producers with roughly the same share of the market, to a new company with a share of about 40% of the market. The number 2 and 3 producers are Engelhard, and Huber, with roughly 18% to 20% each. Thiele is next, with an estimated 8%, and Kadam with 7%. All other producers, such as PPSA and smaller players in Europe control about 7%.
REFERENCES
1. “An overview of the light weight coated papers market”, 1999 Tappi Coating Conference Proceedings, Tappi Press.
2. Pulp and Paper, May 1997, page 84.
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