Pricewaterhouse calls 2001 challenging

Pricewaterhouse Coopers LLP of Vancouver reported that pulp, paper, and forestry companies in both British Columbia and eastern Canada remained profitable in 2000, despite extremely low lumber prices, while U.S. earnings remained flat.

The B.C.-based companies had net earnings of C$577 million ($385 million) in 2000, up from C$419 million ($279 million) in 1999. Excluding earnings gained from operations outside B.C., however, net earnings dropped 19% to C$750 million ($500 million) from C$923 million ($615 million).

Falling lumber prices cancelled strong returns from the pulp sector, said the accounting firm. Eastern Canadian companies had net earnings of C$1.1 billion ($733 million) in 2000, up from C$646 million ($431 million). Pricewaterhouse said that U.S. companies posted net earnings of $4.3 billion (C$6.4 billion) in both 1999 and 2000.

Earnings for global companies included in the annual Pricewaterhouse survey increased from C$17.2 billion ($11.5 billion) to C$20.9 billion ($14.9 billion). Pricewaterhouse projects a more challenging year ahead for the industry in 2001. Lumber prices are expected to remain low, while increases in pulp prices have been tapering off for several months and they are expected to remain flat at $625-$650/mton this year.

Bowater Inc. sets sights on Alliance

Bowater Inc. said that it is buying Canada's Alliance Forest Products in a deal worth $770 million, including debt, in order to help expand its capacity and newsprint facilities.

Bowater said it would pay C$13/share in cash, plus 0.166 shares of its common stock for each Alliance share. The company said the purchase would immediately boost its earnings and it expects savings of $60 million as a result of buying Alliance. Alliance, which earned more than C$1 billion in sales the last three years, is the eighth largest newsprint producer in North America and also can make soft nip and supercalendered (SC) papers with 600,000 tpy of uncoated groundwood capacity.

Norske Skog Canada to acquire Pacifica

Norske Skog Canada Ltd. announced it plans to acquire Pacifica Papers Inc. The combined company would be the third- largest producer of newsprint in North America, with annual pulp and paper capacity of approximately 2.7 million mtons. In addition, Norske Skog Canada would become the leading West Coast producer of newsprint, telephone directory paper, lightweight coated paper (LWC), and hi-brite papers with annual capacity of 1.9 million mtons in those grades. Combined sales from the two companies totals about US$1.6 billion. The Norske Skog Canada/Pacifica Papers combination company would be based in Vancouver, B.C. With the acquisition, Norske Skog Canada said it expects to capture annual synergies of approximately $60 to $100 million. Currently, Norske Skog Canada operates pulp and paper mills at Crofton and Campbell River, B.C. In March, Norske Skog Canada said it reached an agreement to sell the Mackenzie pulp operation located in B.C.'s northern interior to Pope & Talbot Inc., making Pope & Talbot the eighth-largest pulp producer in North America.

Capital spending continues decline

Industry giant International Paper Co. expects to spend $1.2 billion on capital expenditures this year-a 14.3% decrease compared with 2000 spending. Other major companies that provided estimates had varying capital spending plans, based on specific project needs. Willamette Industries projected spending $475 million, almost double its 2000 capital spending. Smurfit-Stone Container Corp. estimates its 2001 spending will total $250-$275 million, about the same level as was spent in 2000. For last year, early financial reports show a four-quarter rolling total of North American capital spending through fourth quarter 2000 had decreased 5.9% to $7.5 billion from the previous quarter.

FiberMark acquires DSI from Rexam

FiberMark Inc. signed an agreement to acquire Rexam Decorative Specialties International (DSI), the leading worldwide producer of latex-saturated decorative materials for book covers, labels, and specialty packaging, custom printing, and office products, for $140 million. Rexam Decorative is part of the British packaging company, Rexam plc. DSI will be FiberMark's sixth acquisition since 1994 and will strengthen FiberMark's position in the global specialty papers market. FiberMark said it will finance the $140 million acquisition with a debt offering of $200 million, which will be used to fund the acquisition and refinance existing debt.

Study on carbonless paper 'uncertain'

The Centers for Disease Control and Prevention's National Institute for Occupational Safety and Health (NIOSH) recently released a long-awaited report on carbonless copy paper (CCP), concluding that "although the weight of evidence indicates that exposure to CCP in the past has resulted in adverse health effects, it is uncertain whether current formulations of CCP represent a significant risk to exposed workers." Appleton Papers Inc., the world's largest manufacturer of carbonless paper, called the report "good news." Appleton Papers has been involved in 15 personal injury lawsuits from office workers who used carbonless copy paper and has settled about half of these claims, largely due to economic reasons. NIOSH advises CCP manufacturers and their suppliers to follow best practices-such as the Product Stewardship Code of Management Practices-to consider how human test procedures can be modified by the use of standardized protocols and to evaluate the frequency and severity of irritation in workers using CCP. Appleton Papers indicated that it already operates a product stewardship program and will continue to monitor any complaints about carbonless paper.

E-commerce growth likely in industry

The paper and forest products industry ranks as one of a few sectors most likely to increase e-commerce spending in coming years, a study by Goldman Sachs Global Equity Research revealed. In a comparison involving 14 other industries, the paper industry ranked as most likely to use the Internet for professional services. Of the 15 industries-including oil, utilities, pharmaceuticals, finance, and other commodity and service sectors-the percentage of paper companies that said they would increase their rate of e-commerce spending from 2000-2001 was 88%, falling just below automobile (89%) and eclipsing the industry average of 80%. When asked if a company would increase its e-commerce spending in response to a competitor, the paper industry participants topped all sectors at 77%. The report cited Boise Cascade Corp. for being progressive in b2b implementation. Others with strong b2b platforms included Proctor & Gamble and Enron Corp. Asked if they would move a percentage of their business to e-commerce if markets emerged in the next 3 to 5 years, 82% of paper companies said they would. As a comparison, consumer products topped the list at 88% and the industry average was 74%.

P&G plans massive restructuring

Consumer products company Procter & Gamble Co. (P&G) plans on eliminating 9,600 workers in the next three years, reducing manufacturing costs, and improving its product pricing. The restructuring would cost $1.4 billion and generate an estimated $600 million to $700 million after-taxes annually by fiscal 2003-04. One-third of the employee reductions will be in manufacturing, including about 40% of the cutbacks in the U.S. The company did not say if or how its paper assets would be impacted. P&G generates about $40 billion in sales per year, including $10.6 billion a year on average the last four years in its paper unit. With the new restructuring effort combined with an earlier one, the company expects to eliminate 17,400 employees or 16% of its workforce.

Weyco to fight for Willamette seats

Willamette Industries Inc. has scheduled its annual shareholder meeting for June 7 in which Weyerhaeuser Co. is set to fight for seats on Willamette's board of directors.

Weyerhaeuser Co. seeks to fill four seats on Willamette's proposed revised board with its own nominees as part of its $5.4 billion hostile takeover bid of Willamette. Willamette announced that three current directors-Duane C. McDougall, Willamette's CEO; Kenneth W. Hergenhan, and Robert M. Smelick- have been nominated to serve three-year terms as directors until the 2004 annual meeting. Weyerhaeuser's proposed directors for the Willamette board include Weyerhaeuser's former chief executive, its general counsel, and a senior vice president. Each of Weyerhaeuser's nominees is being paid $25,000 by Weyerhaeuser, Willamette said, in a release. Weyerhaeuser's payments raise "serious question" as to their independence and agenda, said McDougall.

Deferiet Paper Co. closes New York mill

Deferiet Paper Co. shut down its groundwood specialty paper mill in upstate New York recently. The mill employed about 420 members of the Paper-Allied, Chemical and Energy Workers Union (PACE). The mill has five paper machines producing approximately 225,000 tpy of coated and uncoated groundwood papers, supercalendered (SC) and coated free-sheet papers used in printing directories and catalogs, as well as label stock. Company officials blamed high-energy costs, especially electricity, and pulp prices for the shutdown. The cost of northern bleached softwood kraft (NBSK) pulp increased at rates greater than the mill's ability to pass those costs through to its customers, the company said. The surge of lightweight-coated (LWC) paper imports from Europe also hurt the mill's primary markets: catalogs, directories, and commercial printing. To remain competitive, company officials said Deferiet had to lower its prices, which only made cost problems worse. Company officials said they expect to file for Ch.11 bankruptcy protection to seek refinancing or a buyer for the mill.

G-P mothballs Bellingham mill

Georgia-Pacific Corp. (G-P) permanently closed its Bellingham, Wash., pulp mill and chemical plant that the company had intermittently shut since December because of high energy costs. Bellingham's pulp mill could produce about 213,000 mtpy of bleached softwood sulfite pulp, including 147,000 mtons for the open market. The mill's chemical production, about 260,000 tpy of lignin extracted from its bleaching process, had been a significant profit source, but couldn't compete with rising operation costs. The Bellingham mill saw its energy costs soar from only 7.4% of its operating costs in May to more than 50% for December, or about $6 million per month. The mill's four tissue machines with capacity of 93,000 tpy continue to run on diesel power generators.

Fire damages Quebec pulp mill

A fire caused an estimated C$100,000 damage to Uniforet Inc.'s Port-Cartier, Que., pulp mill on March 3, according to a Montreal Gazette story. Production at the mill was stopped in February and restarted on April 2.

Box USA acquires Minneapolis plant

The United States' largest independent converter, Box USA, announced it acquired the assets of AI Halper in Minneapolis. The company acquired Container Packaging in Kansas City at the end of February from Pratt Industries USA. Terms of the transaction with AI Halper were not disclosed. Box USA said both acquisitions will help the company in markets (Kansas City and Minneapolis) where they have previously transacted little or no business. Based on estimates, Box USA, with 23 plants, is the eighth-largest U.S. corrugated producer.

Weyco to rebuild Valliant machine

Weyerhaeuser Co.'s Valliant, Okla., mill shut down its 240,000-tpy corrugating medium machine No. 2 for 27 days starting March 19 for a major rebuild on the 28-year-old machine. The project aims at improving quality and runnability of the machine's sheet along with a small capacity increase. The rebuild matches with another project that calls for expanding the recycling line that feeds the machine. The recycling line job should be completed in mid-June. Valliant is Weyerhaeuser's largest containerboard mill.

Newsprint makers plan downtime

Abitibi-Consolidated Inc., Bowater Inc., and Kruger Inc. announced production curtailments for newsprint in North America through May, with Bowater and Abitibi-Consolidated taking shuts for market reasons and Kruger shutting down for maintenance, the companies said. The downtime plans were announced as North American producers worked on implementing a proposed $50/mton increase on standard 30-lb newsprint in March. Abitibi announced it would take 50,000 mtons of downtime at its Kenora, Ont., and Sheldon, Texas, mills. Bowater announced it would reduce production of newsprint by approximately 60,000 mtons through the end of May at undisclosed locations. Kruger announced it would take maintenance-related downtime between March and May at its newsprint and coated papers mill in Trois-Rivieres, Que., removing about 12,000 mtons of newsprint from the market.

Lufkin conversion nears completion

Abitibi-Consolidated Inc. said that a $210 million modernization project at its Lufkin, Texas, newsprint mill should be completed by the beginning of summer. When done, the project eliminates 115,000 mtpy of newsprint and calls for the conversion to production of supercalendered (SC) grades. The project calls for three of the mill's four existing machines to be retired and subsequently replaced by a single, more modern machine capable of producing 250,000 mtpy of uncoated SC paper. Machine No. 4 was retired in March, and the No. 1 machine was retired in October, permanently removing newsprint tonnage. Machine No. 3 will remain in operation until the new machine, No. 8, starts up. The No. 2 machine will continue to produce newsprint after the conversion. A separate project at the facility's kraft pulp mill that eliminates the elementary bleaching line in order to comply with the stricter environmental Cluster Rule standards was finished at the beginning of April, according to a representative.

Abitibi to build deinking plant

Abitibi-Consolidated Inc. plans to invest $50 million to build a new deinking plant to boost production to 100% recycled newsprint at its mill in Thorold, Ont. The project will make the Thorold mill the largest newsprint mill in Canada to produce from 100% recycled fiber, according to the company. Construction of the deinking plant began this spring and is expected to be completed by summer of 2002. Thorold currently has the capacity to produce approximately 400,000 mtpy of newsprint.

Canada, U.S. far from lumber deal

The long-simmering U.S./Canada dispute over lumber quotas boiled-over into a full-blown trade war on March 31 when the Softwood Lumber Agreement (SLA) expired, sources said. However, rather than surging in the short term as some fear, most analysts predict that lumber volumes exported from Canada into the U.S. should remain near historical levels until the two governments reach settlement, as over-shipments could be taxed retroactively. The U.S. industry, badly shaken by a collapse in lumber prices recently, has pressed U.S. Trade Representatives, to launch an investigation into markets, including accusations Canadian manufacturers are illegally dumping lumber in the U.S. Even while the lengthy investigation is underway, the U.S. could impose, by early summer, duties of 40% on volumes in excess of quarterly limits of about 4 billion feet. Valued at more than C$10 billion (US$7 billion) annually, Canada softwood lumber represents fully one-third of total U.S. consumption.

Hansol to sell stake in PanAsia Paper

Korea's largest paper and board producer, Hansol Paper, announced it plans to sell off its stake in Pan Asia Paper Co., the three-way joint venture it set up with Abitibi-Consolidated Inc. and Norske Skog, in 1999. The joint venture is the leading newsprint and groundwood paper company in the Asian-Pacific region (excluding Japan) with paper and board production capacity of about 1.4 million mtpy. Norske Skog said it wants to raise its share in Pan Asia Paper from one-third to 50% as part of a drive to strengthen itself in Asia. Hansol's stake in Pan Asia is estimated to be worth $400 million, not including its one-third stake in Pan-Asia's $600 million in debt. Industry sources are reporting that Hansol plans to use the proceeds from the sale of its share to buy assets from fellow Korean papermaker, Shinho Paper, and to pay down debt.

Both Norske Skog and Abitibi-Consolidated have the first shots at buying Hansol's share, based on the joint venture agreement.

Canfor, Oji complete reorganization

Canfor Corp. and Oji Paper Co. of Japan said they completed the reorganization of their joint venture, Howe Sound Pulp and Paper Ltd., as a limited partnership. The new partnership, known as Howe Sound Pulp and Paper Limited Partnership, will be jointly owned by Canfor and Oji and continue with Howe Sound's 195,000 mtpy newsprint and 337,000 mtpy market pulp operations in Port Mellon, B.C. Canfor has agreed to pay about $120 million to the partnership to reduce debt at Howe Sound.

Carter Holt Harvey buys Tasman mill

Carter Holt Harvey (CHH) of New Zealand reached an agreement to acquire Norske Skog's 285,000 mtpy Tasman pulp mill at Kawerau in New Zealand for $130 million. The company will make an additional payment of up to $10 million to Norske Skog under a profit sharing agreement if global pulp prices rise over the next two years.

The company said it would export pulp from Tasman on New Zealand's northeastern coast on North Island primarily to Asian markets. International Paper Co. has a 50.4% share in CHH. The deal makes CHH the only supplier of kraft pulp in New Zealand, with two of the lowest-cost pulp mills in the world and a combined capacity of 560,000 mtpy, the company said. Its flagship Kinleith mill, which is located nearby on the Central North Island, has a capacity of 275,000 mtpy of bleached softwood kraft market pulp.

IP, Carter Holt Harvey invest in business

International Paper Co. (IP) and Carter Holt Harvey Ltd. (CHH) of New Zealand have each acquired a 25% share in Pacific Millennium Paper Group (PMPG), a China-based paper distribution and converting business. PMPG is a private company with 1,200 employees in China and Southeast Asia. The company supplies pulp, containerboard, bleached paperboard and lumber throughout the region and had sales revenue of $350 million in 2000. It has been serving the paper industry in Asia for over 15 years.

CHH is a majority owned subsidiary of New York-based International Paper, which controls approximately 50.3% of the company's outstanding common shares. Peter Springford, president of International Paper Asia Ltd., said the partnership fits perfectly with the company's strategy of growing in the China and Asia markets.

Large SC capacity hike expected

An additional 608,000 mtons of new supercalendered (SC) magazine paper capacity should start-up in Europe in the next two years, according to a recently-released Cepiprint report. In the Demand-Supply Report on Newsprint and Magazine Paper Grades from Cepiprint, SC magazine capacity in Europe was forecasted to increase from about 4.25 million mtpy last year to 4.5 million mtpy this year, and to 4.7 million mtpy in 2002 and 4.855 million mtpy in 2003. The increase amounts to an average annual capacity growth of 4.6% from 2000-2003, far exceeding the 10-year annual growth rate of 3.6% for SC in Europe. The major SC projects come from Haindl Papier in Schongau, Germany, with start-up in third quarter 2000; SCA Forest Products in Laakirchen, Austria, with start-up planned in second quarter 2002; and Stora Enso in Langerbrugge, Belgium, with start-up planned in fourth quarter 2002. An estimated 30% of the SC used in North America each year comes from producers in Europe.