CAPITAL SPENDING

Capital spending to rise 15% this year

Second quarter capital spending increased 4.2% and totaled $7.6 billion for the North American paper/forest product industry-an increase of $308 million from the previous quarter, based on a four-quarter rolling total of capital expenditures through second-quarter 2000. This marks the second consecutive quarter-to-quarter gain in North American spending after three years of declines.

Based on current company spending estimates, expenditures in calendar year 2000 will total more than $8.2 billion, an increase of just under $1.1 billion or 15.5% compared to 1999. If reached, the $8.2 billion figure would be the highest four-quarter spending total since mid-1998.

Total North American expenditures in the April-June 2000 period were $1.92 billion, up 19.0% compared to the same period last year. Expenditures by U.S. companies increased 16.7% to over $1.5 billion while expenditures by Canada-based companies rose 29.9% to $365 million.

Total North American expenditures through the first half 2000 were $3.56 billion, compared to $3.07 billion for the first six months of 1999, an increase of 15.2%. If the spending increases continue as estimated, spending in the last six months of 2000 will total over $4.6 billion, a projected increase of more than $600 million compared to the last six months of 1999.

 

MERGERS/ACQUISITIONS

Crown Vantage purchase canceled

Crown Acquisition Corp. (CAC), an investment group that planned to buy most of the assets of Crown Vantage Inc. and its wholly owned subsidiary Crown Paper Co., has terminated its letter of intent to complete the purchase. The investor group led by NLK Consultants Inc. of Vancouver, said that it pulled out of the deal because a definitive purchase agreement had not been executed by Sept. 27 and Crown Vantage failed to meet certain conditions of the sale. Despite terminating the letter of intent, CAC has expressed interest in acquiring Crown's St. Francisville, La., specialty packaging papers mill.

Prior to the termination of the letter of intent, Crown received an extension from the U.S. Bankruptcy Court in Oakland, Calif., until Dec. 25 for producing a plan of reorganization. The court approved terms of the sale to CAC in July and amended the final terms of the sale for $337 million in cash and other considerations in August.

 

CORPORATE STRATEGY

IP to close mills, sell Masonite business

International Paper Co. plans to close three mills and reduce operations at a fourth paper mill as part of a massive restructuring effort designed to reduce an oversupply of paper, cut operating costs, and improve earnings by about $100 million annually. The majority of the capacity targeted for shutdown is uncoated free-sheet used to make cut-size paper, envelope, and other office papers.

IP said it is shutting mills in Mobile, Ala., Lock Haven, Pa., and Camden, Ark. The company also said it was planning to idle a paper machine and pulp dryer at its Courtland, Ala., facility. Four more efficient paper machines at Courtland will continue to operate.

The shutdowns will result in reductions of approximately 820,000 tons (18%) of IP's U.S. uncoated papers capacity, 120,000 tons (7%) of its North American market pulp, 230,000 tons (5%) of its U.S. containerboard, and 50,000 tons of unbleached kraft paper. The closures will remove about 1.2 million tons, or 5%, of the company's 22.6 million tons of worldwide pulp, paper and paperboard capacity.

The shutdowns will lead to the layoff of approximately 2,500 employees at the mills and related forestry operations beginning in December. IP said workers affected by the layoffs will have access to support services, including outplacement services and job counseling. IP and labor representatives will meet to bargain the effects of the closures on union employees.

In other news, IPaper has reached a definitive agreement to sell its Masonite Corp. hardboard business to Premdor Inc. of Toronto for approximately $523 million. Premdor had said it was negotiating with IP to buy Masonite in the wake of a strategic alliance the three companies entered into early last year. Masonite, part of IP's Building Materials Group, is based in Chicago. It manufactures wood composite products, including hardboard siding, flooring and door components, at operations in six countries for residential, commercial construction, and industrial markets. Masonite employs about 4,500 people.

The Masonite sale is part of IP's program to sell more than $3 billion in assets that no longer fit the company's long term strategy in the wake of acquiring Champion International Corp. earlier this year and the merger with Union Camp Corp. in 1999.

Eastern Pulp & Paper files for Ch. 11

Eastern Pulp & Paper Corp. filed for Chapter 11 bankruptcy protection on Sept. 22. The company said it intends to continue operations in a normal manner, with no immediate impact to its 1,000 workers. Eastern has estimated total capacity of just over 200,000 tpy of printing/writing papers and tissue at two mills.

The news follows the reported financial troubles of mid- and small-sized papermakers including Crown Vantage Corp., Plainwell Inc., Global Tissue LLC, and Badger Paper Mills Inc.

The depressed state of business in printing/writing paper markets, which has brought prices in some cases below 1998 levels, plus much higher costs for energy and raw materials and the company's spending of $70 million in environmental upgrades are the primary reasons for seeking Chapter 11 protection, a company representative said in a statement. The company consists of two separate operations, Eastern Fine Paper Inc. in Brewer, Maine, and Lincoln Pulp & Paper Co. in Lincoln, Maine. The Brewer mill produces about 96,000 tpy of mostly silicone-coated paper for labels and fine printing/writing paper on three machines. The Lincoln mill produces about 115,000 tpy of mostly specialty paper and tissue on four machines. The filing lists debts totaling $181.3 million and assets of $187.8 million. The Lincoln mill's debts are $110.66 million compared with assets of $113.97 million and the Brewer mill's debts are $70.65 million compared with assets of $73.84 million, according to the filing.

 

NEWSPRINT

Bowater to acquire Korea's Sepoong mill

Bowater Inc. has finalized plans to buy South Korea newsprint maker Sepoong Corp. for an estimated price of $201 million. According to reports, Bowater and officials at Cho Hung Bank, the company's main creditor in Korea, has signed a letter of intent for the sale of the mill, and expect to complete a deal by the end of this year. Bowater already owns Halla Paper and its mill in Mok'po, South Korea.

Seepoong's Seoul mill has capacity to produce 261,000 mtpy of newsprint and 59,000 mtpy of printing/writing grades.

 

COATED PAPER

Stora Enso retires Wisconsin machines

Stora Enso Oyj said it is permanently retiring two old and small former Consolidated Papers coated paper machines in Wisconsin effective immediately. The shut eliminates 73,000 tpy of capacity. Both units were currently not producing paper, and one was previously identified for closure, but the move adds substance to producer intentions of closing marginal capacity in order to improve publication papers supply/demand conditions.

The Stora Enso announcement follows a major rationalization strategy revealed by International Paper Co. that includes closure of 820,000 tpy of IP's uncoated paper capacity.

Stora Enso North America Div. said it will close a free-sheet machine at the Wisconsin Rapids mill in Wisconsin Rapids, Wis., and a groundwood unit at the Wisconsin River mill in Whiting, Wis. Both machines were on standby status, operating only as needed, and neither was currently producing paper, the company said last week. The combined capacity is but a fractionate of Consolidated's estimated North American total capacity of 1.83 million tpy of coated papers.

 

GROUNDWOOD PAPERS

Alliance starts up Donnacona machine

Alliance Forest Products Inc. has started up a new supercalendered (SC-A) paper machine in a C$275 million investment at its Donnacona, Que., mill. The first saleable paper roll was produced Oct. 22, and the ramp up will take place over the next two quarters, with the objective of reaching a 75% efficiency level by early 2001. The No. 4 machine will produce high-end SC-A, which will be marketed to the insert/coupon, catalog and magazine markets. The PM has the capacity to produce 152,000 mtpy that will be available in up to 72 ISO brightness.

Two older paper machines at the mill, Nos. 1 and 2, producing a combined 90,000 mtpy of newsprint and uncoated groundwood specialties, are expected to permanently shut down by mid-November as No. 4 ramps up. The older machines have been operating sporadically, the company said. Donnacona has a third paper machine with capacity for about 90,000 mtpy of newsprint and specialties.

The new machine makes Alliance the third largest SC producer in North America after Abitibi-Consolidated Inc. and Stora Enso North America, and brings the company closer to its stated goal of becoming a leading supplier of SC printing papers.

 

TISSUE

American Tissue revives Memphis mill

American Tissue Corp. is closer to fully restarting its newly acquired paper mill in Memphis, Tenn., by launching one machine and ratifying a 10-year contract with workers at the mill. The mill is producing bathroom tissue and towels on one machine, but expects to start-up the second unit by the end of this year. The mill has been listed with capacity of 110,000 mtpy. New converting equipment has been ordered and began arriving in November. The company expects all the equipment by the second quarter of next year.

In addition, the 10-year contract with workers includes a wage increase, 401K enhancement, and extended training. The Memphis mill is represented by the Paper Allied-Industrial, Chemical and Energy Workers International Union (PACE).

 

CONTAINERBOARD

Norampac acquires N.Y.'s Armor Box

Norampac Inc. has entered into an agreement to acquire the assets of Armor Box Corp., a producer of corrugated products with one converting plant in Buffalo, N.Y., that can produce 600 million ft2.

Armor Box recently completed two major expansions valued at $4 million and has seen sales grow 30% in recent years. An official at Armor Box said the deal would allow continued growth, and have a significant positive impact both for customers and employees. Armor Box will now offer an expanded product line to include specialty packaging, large boxes, and high quality graphics.

Weyerhaeuser plans downtime at mills

Weyerhaeuser Co. plans 140,000 tons of downtime at its containerboard mills in the fourth quarter, the company said. Most of the downtime (96,000 tons) will be taken at two mills in Plymouth, N.C., and Springfield, Ore. The rest of the downtime (43,000 tons) will be staggered at the company's five other containerboard mills.

The No. 3 recycled corrugating medium machine at Plymouth was shut on Oct. 15 and will remain down through year-end.

At Springfield, downtime was planned on both kraft linerboard machines from Sept. 29 through Nov. 11, and from Nov. 17 through Dec. 5.

In total, with the expected downtime, Weyerhaeuser's containerboard unit would operate at an estimated 85% of capacity in the fourth quarter.

Norampac begins $36 million project

Norampac Inc. broke ground on a $36 million project for building a 400,000 ft2 box plant in Vaughan, Ont., outside Toronto. The plant replaces the company's Leaside plant in Toronto, and will include a BHS 110-in. corrugator and warehouse for containerboard. Plans call for the plant to be operating next spring.

 

MARKET PULP

Bowater, Fletcher slate pulp downtime

Bowater Inc. and Fletcher Challenge Canada have both announced plans for downtime of pulp production during the fourth quarter. Bowater said it would curtail 25,000 tonnes of pulp production in the fourth quarter at undisclosed pulp and paper mills, but officials added that some of the tonnage is being removed from Bowater's internal consumption, which may only slightly reduce overall market pulp supply.

Bowater's move curtails roughly 10% of its quarterly capacity, and follows a summer in which the U.S. pulp sector operated at about 105% of capacity. That kind of production, Bowater officials said, is destabilizing to both market pulp pricing and to paper prices. Company officials said Bowater's pulp inventories are currently low but said the company needs to anticipate market conditions.

Seasonal maintenance outages are also in the picture. Managers at Bowater see the pulp market as robust, while the paper sector has become of primary concern. They downplayed weakness in hardwood pulp demand as a reason for the curtailment.

Fletcher Challenge Canada Ltd. will reduce its fourth quarter northern bleached softwood kraft (NBSK) market pulp output at three British Columbia mills by 25,000 tonnes, which closely follows curtailments by several of North America's biggest pulp producers. The Vancouver-based company also said it will consider further reductions depending on market conditions.

Fletcher Canada is combining market-related slowdowns with maintenance curtailments. Its 218,000 mtpy Mackenzie, B.C., mill will reduce capacity by about 6,000 tonnes by slowing back production. The Crofton, B.C., mill, which produces 327,000 mtpy of NBSK along with groundwood papers, will combine its scheduled October maintenance downtime with a further curtailment in November, totaling an output reduction of more than 10,000 tonnes. The 200,000 mtpy Elk Falls pulp mill in Campbell River, B.C., will remove more than 9,000 tonnes by extending a planned maintenance shutdown in November.

Aspen Bay Pulp nears financing

Aspen Bay Pulp & Fibre reported progress in financing a $300 million, 288,000 mtpy bleached chemi-thermomechanical (BCTMP) pulp mill in Menominee, Mich. Startup plans are set for late 2002. A company official said Aspen Bay should obtain financing for the project this winter with a projected 18-month construction period to begin the following spring.

First proposed in 1995, details about Aspen Bay's product mix remain unclear, as the company will not comment on product mix.

Site preparation work, including excavation and backfilling, is underway at the Upper Peninsula site. Equipment needs and suppliers have not been finalized.

The new mill will be located next door to Great Lakes Pulp & Fibre Inc., which produces 100% recycled pulp. A cooperative plan to construct a cogeneration facility to supply steam and electricity for both mills has been put aside in favor of 100% purchased power.

Furnish for the mill will include softwood as well as hardwood (maple and aspen) species in roundwood form. The Aspen Bay mill will create about 100 new jobs at the plant and another 300 contract logging jobs.

APP delayed in acquiring pulp mill

Despite financing troubles and delays, a deal in the often-delayed purchase of Celgar Pulp Co. in British Columbia by Singapore-based Asia Pulp & Paper Co. Ltd. is expected to close before the end of the fourth quarter, said an APP official.

Since announcing the proposed transaction June 6, APP has been scrambling to finance the purchase of Celgar's 1,200 mtpd bleached softwood kraft pulp mill in Castlegar, B.C.

APP hopes to exchange bonds for a combination of cash, new 15% guaranteed five-year notes, and warrants for its U.S. depository shares, according to a statement. Meanwhile, the company's CFO Hendrick Tee said recently in a conference call that both parties were working on finalizing the deal and expected to close it as soon as possible. An official with Celgar confirmed that APP is their primary suitor.

The APP official said the price was "around US$300 million," less than industry observers previously estimated. The company, which has already submitted a deposit for the purchase to Celgar, may be forced to give up the purchase if they cannot find a source to fund the deal before the deadline. However, the Celgar official contends that an extended review by the Canadian government has slowed the deal more than APP's financial woes.

 

ENERGY

Abitibi mill plans C$65 million upgrade

Moving to reduce costs at its Grand Falls, Nfld., paper mill and to sell surplus energy, Abitibi-Consolidated Inc. is planning a C$65 million improvement to its hydro-generating station in Bishop's Fall, Nfld. According to the company's energy supervisor, an agreement with Newfoundland Hydro and Abitibi calls for the company to sell energy not consumed by its 213,000 mtpy newsprint mill to the province.

After refurbishing nine horizontal generators and installing six new turbines, Bishop's Fall will yield about 20% more gigawatt hours of hydro. The generator will also convert to a 60 hertz-per-second cycle while running fully automatic operations. Currently Abitibi staffs the generator.

Abitibi said it is securing capital to offset the costs, adding that a "partnership is likely" where they would share the investment, and profits, with another source. Construction will begin in spring of 2001 with service projected to begin in June 2003. An engineering firm has not yet been named.

Tembec plans co-gen project at B.C. mill

Tembec Inc. has announced it has begun work on a $33 million co-generation project at the 227,000 mtpy former Crestbrook Forest Industries (CFI) market pulp mill in Skookumchuck, B.C. The softwood kraft pulp mill, will use bark and other wood waste to generate electricity.

The plant will be fired by using bark and wood waste from the CFI and other regional sawmills. Once the system is running, it will eliminate "teepee" burners, reduce fossil fuel consumption by 60%, and address landfill issues, the company said.

 

FOREST RESOURCES

PCA to sell U.S. South timberlands

Packaging Corp. of America (PCA) said it will sell approximately 385,000 acres of U.S. South timberlands to Southern Timber Ventures LLC. PCA expects approximately $250 million in cash from the sale and will take a one-third ownership interest in Southern Timber, according to the companies. A November closing is planned.

The sale of mostly pine timberlands in Georgia and Tennessee will allow PCA to pay down debt while maintaining a long-term fiber supply agreement for its large Counce, Tenn., linerboard mill.

This latest transaction adds to more than $7 billion and 11 million acres of U.S. timberland that has changed ownership over the 1997-2000 period. PCA still retains control over more than 400,000 acres of timberland.

 

ENVIRONMENT

Bowater spending $175 million on line

Bowater Inc. has begun developing a new, $175 million kraft pulp line at its massive Catawba pulp and paper mill in South Carolina. According to an Environmental Protection Agency official, the addition, which is required to meet Cluster Rules emissions and water use requirements, follows Bowater's enrollment in EPA's Voluntary Advanced Technology Incentives Program (VATIP).

Those requirements are outlined in "Tier 1" of the EPA's program, in which pulp and paper mills elect to, according to agency's Office of Water fact sheet, "comply with more stringent wastewater regulations, and in exchange, have extra time to comply."

Bowater said it is easily on target to meet the "Tier 1 compliance in April of 2004." Bowater joins International Paper Co. and P.H. Glatfelter Co. as VATIP participants.

By joining VATIP, Bowater is buying time to design and construct its new mill, which will consist of a single continuous digester for kraft pulp production, with an oxygen delignification stage added to the process. The existing recovery boiler will not be replaced.

Spending on the project will accumulate throughout the fourth quarter periods from 2000 to 2003, including $30 million in construction and labor. The Catawba mill's existing line, consisting of 10 batch digesters, produces about 269,000 tpy of bleached softwood kraft market pulp. Bowater will keep its current workforce after the transition, and plans to retrain its supervisors and operators to handle the new system. The Catawba mill also has capacity of 356,000 tpy of coated groundwood and 261,000 tpy of newsprint.

 

DISTRIBUTION

UPM, Metsa-Serla in Baltimore port deal

UPM-Kymmene Corp. and Metsa-Serla Corp. plan to ship 550,000 mtpy of their products through the Port of Baltimore as part of a five-year deal, Maryland Gov. Parris N. Glendening announced last week. The deal takes effect on Jan. 1, but must first be approved by the Baltimore board of public works on Nov. 17.

Under the proposed deal, UPM-Kymmene guarantees shipping 440,000 mtpy through the port, and Metsa Serla guarantees 110,000 mtpy. The tonnage would be shipped through the port's North and South Locust Point terminals. The Maryland Port Administration plans on building a new 150,000 ft2 shed at South Locust Point and has started construction on another shed at Dundalk Marine Terminal.

Merchant Cordage Paper sold

One of the country's oldest paper merchants, Cincinnati Cordage & Paper Co. (Cordage Papers), was sold in a bankruptcy court asset sale on Oct. 23. Faced with a mounting cash flow crisis, the 108-year-old company filed for bankruptcy protection from creditors Aug. 1. The company had 1999 revenues of $130 million and employs about 200 people at nine Midwest locations. It listed assets of $32.8 million and debts totaling $34 million.

Competitor Milcraft Paper Co., purchased the assets of three of the company's warehouse, converting and distribution facilities in Indianapolis, Ind., Pittsburgh, Pa., and Huntington, W. Va. Cordage Papers also has locations in Col-umbus, Dayton, and Cleveland, Ohio; Louisville, Ky. and Nashville, Tenn., which have attracted interest from potential buyers.

 

INTERNATIONAL NEWS

Final letters signed for Veracel mill

Stora Enso, Aracruz Celulose SA and Odebrecht SA have signed the final agreements for Aracruz to acquire a 45% stake in the estimated $840 million Veracel pulp mill project. The companies signed a letter of intent on July 6, and are now waiting on the outcome of the due diligence process before finalizing the agreement. Aracruz will pay some $83 million for its stake; Stora Enso will also own 45% while Odebrecht will hold the remainder. Veracel's owners plan to decide when to build the pulp mill at the end of 2002.