E-COMMERCE

IP, G-P, and Weyerhaeuser form Internet exchange

U.S. forest industry kingpins International Paper Co., Georgia-Pacific Corp., and Weyerhaeuser Co. announced that they intend to develop a global business-to-business e-commerce marketplace to enable the buying and selling of paper and forest products over the internet. The service is expected to launch by the third quarter.

The companies said they can benefit customers by simplifying transaction processes, improving information flow, and increasing speed of delivery, thereby reducing costs. Providing both procurement and sales functions means the on-line marketplace will also enable participating companies to streamline purchasing operations, reduce inventories, cut internal costs, and increase capital efficiency in the industry.

The companies’ statement said until the electronic marketplace is up and running, which is subject to appropriate governmental and other approvals, the companies will continue to conduct sales and procurement activities as normal. Based on demonstrated success, the companies will consider taking the entity public.

 

CONTAINERBOARD

Price-fixing lawsuit names 7 producers

Seven major U.S. integrated containerboard producers are named in a class-action lawsuit alleging they fixed prices for linerboard and corrugated containers from Oct. 1, 1993, through Nov. 30, 1995. The companies named as defendants are Gaylord Container Corp.; Georgia-Pacific Corp.; Inland Paperboard and Packaging Inc.; International Paper Co. (IP) and the former Union Camp Corp. (now part of IP); Stone Container Corp. and the former Jefferson Smurfit Corp. (now Smurfit-Stone Container Corp.); the former Tenneco Packaging (now Packaging Corp. of America); and Weyerhaeuser Co., according to legal and industry sources and company public reports.

Two lawsuits were filed in 1998-99 before being combined into the one class-action lawsuit. Alleging a violation of Sec. 1 of the Sherman Act, the lawsuits were initially separate based on alleged price fixing on linerboard and on corrugated containers. The lead plaintiffs for the linerboard lawsuit are Winoff Industries Inc., Garrett Paper Co., Oak Valley Farms of Watertown, S.D., and Local Baking Products. The lead plaintiffs for the corrugated container lawsuit are Crest Meat Co., General Refractories, and AI Halper Corrugated Box Co.

The plaintiffs seek repayment for some of the money they paid for linerboard and boxes from the beginning of October 1993 through the end of November 1995. The plaintiffs believe the producers fixed prices for linerboard that also pushed up prices for boxes, and must prove that the prices during the two-year period were higher than what the market price should have been.

 

INDUSTRY OUTLOOK

Industry outlook favorable,with higher operating rates, prices, and profits

The American Forest & Paper Assn. held its annual Paper Week meeting in March in New York City, with attendees hearing very positive forecasts for a paper market upcycle, higher prices, and robust earnings. Wall Street forest products analyst Matthew Berler of Morgan Stanley Dean Witter outlined a very favorable economic forecast, saying he expects the North American pulp and paper industry to continue a solid price and earnings recovery over the next two years. “For now, the good times are here again,” said Berler. He was a featured speaker at an industry forum that reviewed world regional economic outlooks. All of the industry data indicates that demand is growing, shipments are rising, operating rates are high, product prices are up from their lows, and profits are rebounding, he said. Morgan Stanley is forecasting strong, sustained U.S. economic growth of 4.8% this year. But rising interest rates will reduce growth to 3.5% in 2001 and followed by even slower growth in 2002 and 2003. Paper mill operating rates should remain at very high levels during the next two years, thereby allowing further increases in product pricing and earnings. Berler forecasts U.S. paper company earnings will increases 57% this year and 48% in 2001. Unfortunately, there are “limits to growth,” he said. Higher paper prices could ultimately lead to lower paper consumption. Papermakers have yet to remember the “sensitivity of demand to price,” commented Berler. Customers could respond to higher paper prices by taking measures to reduce consumption and substituting lower-priced alternative materials, particularly in packaging and publication papers. Berler said most investors buy paper stocks at the very bottom of the industry cycle, hoping to capture rising value during the recovery period. The recovery will continue, but investors are concerned that paper companies will direct their increased cash flow and earnings into costly capital spending projects rather than improving shareholder value. However, the two-to-three year lead time required to build new greenfield capacity suggests that operating rates, product prices and profits could stay high until 2002, commented Berler.

 

NEWSPRINT

SP Newsprint to invest $91 million

SP Newsprint Co. plans on spending $91 million at its Newberg, Ore., newsprint mill to install a new deinked pulp facility and to add a soft nip calender to one paper machine. The investment also includes about $10.5 million for basic maintenance at the 370,000 mtpy mill. SP Newsprint acquired the mill from Smurfit-Stone Container Corp. last year.

The projects should be completed by the end of third-quarter 2001, according to a company official. All projects are planned to be completed during regular maintenance shuts scheduled for 2000 and 2001, the official said.

The investment includes $8.5 million for a soft nip calender to be added to the No. 6 paper machine, the official said. The company plans to produce soft nip calendered newsprint on the machine, which has capacity to produce 215,000 mtpy.

The largest portion of the investment is the previously announced $72 million for construction of a new deinked pulp facility. Work on the facility started Feb. 8.

 

UNCOATED GROUNDWOOD

Madison Paper plans SC machine upgrade

Madison Paper Industries, a producer of supercalendered (SC) paper, said it is investing $52 million to rebuild and upgrade the lone No. 3 paper machine at its mill in Madison, Maine.

The rebuild, which is scheduled for completion in second-quarter 2001, will upgrade the current Valmet paper machine to produce the highest quality and most technologically advanced SC available. The investment will allow Madison to maintain the position of its grade, Symmetry, at the top of the quality spectrum of SC papers.

The No. 3 machine has capacity to produce 190,000 metric tons/year of SC-A. Madison Paper Industries is a partnership of Myllykoski Corp. of Finland and The New York Times Co.

Pacifica to upgrade; layoffs at B.C. mill

Pacifica Papers Ltd. said it will invest C$6 million in its Powell River, B.C., groundwood paper mill’s woodroom. The project is expected to last until mid-July and will allow the mill to reduce operating shifts while maintaining current production levels, officials said. The changes to the woodroom and restructuring in other areas of the mill will result in the loss of approximately 100 jobs.

The improvements will include the replacement of older hydraulic barkers with more reliable, smaller ring barkers, various conveyer deck modifications, and new feeders that will singulate logs more efficiently. The anticipated layoffs will be phased in over the fourth quarter of 2000, according to company officials.

 

PECIALTY PAPERS

Great Northern to convert newsprint PM

Great Northern Paper Inc. plans an extensive rebuild of its No. 11 paper machine so that the machine can make specialty paper instead of directory paper, the company said. Valmet will supply the equipment for the rebuild at the Millinocket, Maine, mill. The company would not specify the type of specialty paper that it wants to make on PM No. 11. The rebuild is scheduled to start in early 2001 and finish in late-summer 2001.

Rebuilding the machine is part of Great Northern Paper’s plan to move away from the production of standard newsprint. Once installed, the total cost for the No. 11 machine rebuild is estimated at $100 million, Stetson said. The project, which uses Valmet’s OptiConcept technology, will include a rebuild of the press section, a dryer section modification, and a WinBelt L winder, according to a press release.

Directory paper production on the No. 11 will be shifted over to the No. 5 paper machine at the East Millinocket mill. The rebuild of the No. 5 PM, which currently produces newsprint, includes the installation of new electric drives.

Wausau-Mosinee closing Sorg mill

Wausau-Mosinee Paper Corp. announced in March that it is permanently closing its Sorg Paper Co. specialty papers mill in Middletown, Ohio. The closing is expected to occur around May 15 and will affect approximately 200 salaried and union workers.

The Sorg mill, which is nearly 150 years old, operates three small paper machines that produce a variety of specialty paper grades. Total production capacity is approximately 40,000 tpy.

Some production of these specialty paper grades will be shifted to Wausau-Mosinee mills located in Brokaw and Mosinee, Wis., said a company spokesman. But a majority of the lower-value grades will probably be discontinued after the Sorg closure.

The company’s paper operations at its Bay West Paper Corp. mill, also located in Middletown, are unaffected by the Sorg announcement. Wausau-Mosinee had sought to find buyers for the mill, but had received no offers from other paper companies. A company official said in recent months, Sorg Paper operations have been losing approximately $750,000 per month.

 

CORPORATE STRATEGY

Sappi partners with G-P’s Unisource

Sappi Fine Paper North America has formed a partnership with Georgia-Pacific Corp. subsidiary, Unisource Worldwide Inc., to sell Sappi’s coated free-sheet, uncoated, and imported paper grades across the U.S. The partnership charges Unisource with sales of Sappi’s full line of products, and will increase Unisource’s role in marketing and distributing Sappi’s products. "With Unisource carrying the breadth and depth of the Sappi line, our inventory will be more readily available to service the needs of the printer, said Sappi pres. and CEO Monte R. Haymon.

Crown Vantage in Ch. 11 bankruptcy

Crown Vantage announced in March that it has voluntarily filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The company said that it initiated the Chapter 11 filing in federal bankruptcy court in Oakland, Calif., because it offered the most viable way to access new working capital and restructure finances while continuing normal operations.

Crown Vantage, which relocated its corporate headquarters from Oakland to Cincinnati last year, was pushed into Chapter 11 after it failed to secure $26 million of additional bank financing from a prospective lender and its bond ratings were cut to default.

The company said that it has arranged for $100 million in debtor-in-possession (DIP) financing from Morgan Guaranty Trust Company of New York, Chase Manhattan Bank, and a group of institutional lenders to ensure that it has the capital necessary to continue operating its business as normal during the restructuring process. The company has sought and expects to receive the court’s approval to pay employee salaries, wages and benefits without interruption and pay for the delivery of goods and services, including purchased pulp.

Crown Vantage is a leading manufacturer of value-added, specialty papers for printing, publishing and packaging.

FSC Paper plans bankruptcy auction

FSC Paper Co. of Alsip, Ill., has filed for bankruptcy and was expected to sell its newsprint mill assets at an auction in April. An opening bid of $44 million has been made by Madison Paper Co., a wholly-owned affiliate company of Myllykoski Oy of Finland. The Feb. 17 filing in the U.S. Bankruptcy Court for the Northern District of Illinois allows the buyer to acquire the assets of FSC but not the associated liabilities, which total about $80 million, according to sources close to the deal.

The sale auction was scheduled to be held Apr. 7 with the winning bid expected to be approved by the bankruptcy court on Apr. 11. To be considered, a competing bid must exceed Madison’s offer by $1.5 million.

In 1994, FSC spent $30 million to install an on-machine coater and upgrade the deinked pulp mill, the sole source of fiber for the single paper machine. The coater allows for the production of coated mechanical printing paper, but in recent months the 330 tpd mill has been producing only newsprint.

Industry sources said Madison may want to produce SC at the FSC mill, but noted that none of the SC production in North America is from 100% recycled fiber. However, late last year Myllykoski started up a new paper machine at the Ettringen mill that uses 85% deinked pulp to produce newsprint and SC papers.

New buyer sought for Gallaher Thorold mill

Gallaher Thorold Paper Co. remained insolvent after a potential buyer, the Butler Group, failed to complete the sale by a Mar. 10 deadline. The mill’s receiver Ernst & Young Inc. of Toronto said it is now in discussions with other potential buyers. The specialty recycled paper mill has been closed since last May.

 

LABOR

Explosion at Bowater mill kills two

Two men were killed and four others injured when a tank exploded Mar. 14 at Bowater Inc.’s Catawba, S.C., pulp and paper mill. Frankie Pittman, 57, of Chester, S.C., and Danny Sherer, 49, of Rock Hill, S.C., died in the explosion. Both were contract workers for SW&B Construction of Auburn, Maine.

According to reports, the workers were on top of a 37-foot-tall tank that was about two-thirds filled with condensate, a steam byproduct. The workers were welding on the tank top when it exploded. The tank was recently installed and was being used to collect emissions from the pulping process.

The fiery explosion occurred at about 11:20 a.m. at the 865,000 tpy coated paper, newsprint, and market pulp plant. There was no major damage to the paper mill. OSHA and local officials are investigating the accident.

Workers seek ownership of mill

Unionized workers at Smurfit-Stone Container Corp.’s Oregon City, Ore., mill in March rejected a set of labor concessions related to the planned sale of the mill to an investor group. Following the vote, the union said it plans to pursue a 100% employee buyout of the mill and will present the proposal to Smurfit-Stone for consideration. Company officials were not available for comment.

Smurfit-Stone announced in January that it had signed a letter of intent to transfer ownership of the mill, which produces 170,000 short tpy of recycled newsprint, to KPS Special Situations Fund L.S. of New York. Other investors included employees and managers at the mill.

A Smurfit-Stone official reaffirmed that the company “won’t remain in the newsprint business” but denied reports that it would shut the mill if the deal fell through.

 

TRANSPORTATION

Latest rail merger could be in trouble

Canadian National Railway Co.’s (CN) plan to create North America’s largest railroad could fall apart unless the 15-month U.S. ban on rail mergers is lifted according to CN’s U.S. partner, Burlington Northern Santa Fe Corp. (BNSF). Robert Krebs, CEO of BNSF, issued that warning as U.S. regulators testified before a U.S. Congressional committee in March. In deciding to impose the moratorium, Surface Transportation Board regulators said they wanted to restore stability to the rail industry and investor confidence in railroads.

Such a delay “could preclude us from going forward with the combination at all,” Mr. Krebs said. The remarks were the first public acknowledgment by either company that the ruling could kill their planned $6-billion merger. The merger, according to CN Pres. and CEO Paul M. Tellier, will offer shippers new and more efficient rail access to North American markets. Some paper and forest products manufacturers claim that neither the railroads nor the public have yet achieved the benefits promised in the last round of mergers.

Montreal-based CN and BNSF of Fort Worth, Texas, have appealed the decision in U.S. court, arguing that the STB overstepped its bounds and has unfairly singled them out for the poor rail service provided by the rest of the industry.

 

RECOVERED PAPER

U.S. paper recovery rate hits 45%

U.S. paper recovery rose by 2.3 million tons in 1999 to a new high of 47.3 million tons as paper and board mills continued using more recovered paper in their furnishes. Based on an American Forest & Paper Assn. (AF&PA) report, the paper recovery rate-total paper recovered for domestic use and export as a percentage of purchases of paper and paperboard rose to 45 percent in 1999.

Consumption of recovered fiber by U.S. mills was up 4 percent in 1999, almost double the 2.2 percent increase scored by paper and paper production. Recovered paper's share of total fiber consumption increased to 36.5 percent in 1999 from 36.1 percent the year before and 25.0 percent in 1998. U.S. mills consumed 37.5 million tons of recovered paper in 1999, compared to 36.0 million tons in 1998. The U.S. exported another 8 million tons last year, primarily to Asia (about 4 million tons), Canada (2.5 million tons), and Mexico (almost 1.7 million tons). It was also estimated that in 1999, two million tons of recovered paper—up from 1.7 million tons in 1998 and double that of a decade ago—were used in non-paper products such as cellulose insulation, molded pulp packaging, mulch, and compost.

The fastest growing use for recovered paper in nontraditional markets is cellulose insulation, which used 550,000 tons in 1998 and approximately 700,000 tons in 1999. Use of recovered fiber for molded pulp products—especially for use as interior packaging—is also up. Approximately 450,000 tons were used in 1999, up from 290,000 tons in 1990. The amount used for paper mulch has doubled since 1990 to 200,000 tons in 1999.

 

ENVIRONMENT

Smurfit-Stone mill faces fine

Smurfit-Stone Container Corp. said it will “vigorously defend” itself against charges that it violated “specified environmental standards” at its 230,000 mtpy New Richmond, Que., linerboard mill in 1999. Last August, the Quebec Ministry of Environment fined the mill C$6.5 million for the infractions. Smurfit-Stone Container entered a plea of not guilty as to all of the citations and the matter is currently under review.

In the 10-K Smurfit-Stone Container filed, the company indicates that the majority of the citations allege that the company had “discharged total suspended solids (TSS) in the mill’s treated effluent which exceeded the regulatory limitations for the rolling 30-day average. The remainder of the violations were for monitoring, reporting, and administrative deficiencies uncovered during an inspection performed by the Ministry earlier in 1999.”

TSS refers to small particles of solid pollutants that float on the surface of, or are suspended in, sewage or other liquids. They resist removal by conventional methods. Regulatory agencies use TSS as a measure for meeting environmental standards established in regulations.

 

CAPITAL SPENDING

Finch, Pruyn builds warehouse

Finch, Pruyn & Co. Inc. is constructing a new on-site pulp warehouse at its 215,000 tpy Glens Falls, N.Y., uncoated publication and specialty papers mill. The project will replace an off-site warehouse and rented pulp storage facilities now in use.

The new 17,000 ft² building will also house two pulping units. A 150 tpd pulping machine will be moved from the mill to the building to accompany a new 400 tpd machine. Project cost was not available. Construction of the warehouse will be completed by mid-June.

 

INTERNATIONAL NEWS

Japan’s Nippon to merge with Daishowa

Nippon Paper Industries Co. has announced it will buy Daishowa Paper Co. in a deal worth close to $1.6 billion. The acquisition will make the new company Japan’s largest papermaker, and seventh largest in the world with combined annual paper output of 5.91 million mtpy. The two companies said they will become a wholly owned subsidiary of a holding company to be set up by April 2001.

Under the terms of the merger, the new company, to be named by a joint committee, will reduce its combined work force by 1,500 to 8,500 over three years through early retirement and a hiring freeze. *

AF&PA supports China in WTO

The American Forest & Paper Assn. (AF&PA) said it has endorsed China’s accession to the World Trade Organization and urged Congress to quickly approve Permanent Normal Trade Relations (PNTR) for China. AF&PA pres. and CEO W. Henson Moore said it was “essential” that Congress grant permanent, unconditional trade status to China.

The bilateral market access agreement, concluded in November 1999 between the U.S. and China, will reduce most Chinese paper and wood tariffs to the 5 to 7.5% level, with some tariffs as low as 1 to 2%, well below the current levels of 12 to 18% on wood and 15 to 25% on paper products.

Equally important, said Moore, China has agreed that if an Accelerated Tariff Liberalization (ATL) agreement is reached in the WTO, China will join the forest products initiative upon its accession. This would mean that China would actually eliminate tariffs on wood and paper products, he said.

 

NEWS SCAN

paperloop.com launches new website

Paperloop.com, an online information and business exchange for the paper, printing, and converting industries, was officially launched Mar. 12 at the American Forest & Paper Assn.’s 123rd annual Paper Week meeting in New York. The company is a joint venture between Pulp and Paper’s parent company, Miller Freeman Inc., and Greenwich, Conn.-based Pegasus Capital Advisors L.P. an $800 million private equity fund. The new company will create an online information and business exchange for buying, selling and conducting a comprehensive set of transactions. The site’s e-commerce offerings will blend online and offline content with proprietary technology, applications, and industry expertise.