Are you ready for some good news?

There are not too many people who would answer no to such a simplistic question, particularly in the pulp and paper industry where most are anxious for a glimpse of the slenderest of silver linings between the clouds that have enveloped the industry.

At the Paper Summit conference and exhibition held in Atlanta in March, Inland Paperboard and Packaging's Willis Potts gave delegates six reasons for optimism during his keynote address. Among the six:
•  paper products are and will continue to be essential building blocks in our society;
•  the industry has learned its environmental lessons;
•  cost control measures at the "firing line level" have been successful. These require total support and adherence to from the entire organization. As Potts added, bottlenecks are found at the top of the bottle.
•  the industry is now market-, not production-driven;
•  consolidation has reduced fragmentation and volatility;
•  the industry's strength is its people. "Great change is expected of us and we are meeting the challenge," Potts said.

Although addressed to mostly North American ears, Potts' words would probably find a sympathetic audience worldwide. Still, optimism alone does not pay the bills. Many would say that the industry still has a long way to go in some of the areas Potts cited.

Another view

As for consolidation, although it had been difficult to find someone within the industry who had a bad word to say about it (other than maybe those who were declared redundant as a result of a takeover/merger), there are some doubters. Until recently, the belief that consolidation was to be the salvation of the industry almost became a mantra. In his excellent Viewpoint on page three of this issue, "The failure of consolidation", Henry Poole of Credit Lyonnais Securities says that consolidation cannot "artificially create a profitable balance between supply and demand."

He also notes how the debate about consolidation obscures the point of how the European industry has become dependent on the weakness of the euro versus the American dollar. Having covered the Canadian pulp and paper industry for many years, this is familiar ground for me. Vis-a-vis the American dollar, Canadian currency has fared miserably the past few years. The Canadian dollar now trades at just over US$0.60, a fact that makes Canada's export position look very appealing. This of course leads to the ongoing debate in Canada that the industry is lazy, unwlling to change/modernize because it has become too dependent on the relative weakness of its currency. At one industry conference a few years back, a panel discussion was asked what would happen if the Canadian dollar jumped to a value of US$0.70-0.75. The consensus seemed to be, only half facetiously, that the industry would have to just about shut down.

The right path

Now this does not sound like too much good news. But rebuttals notwithstanding, the industry appears headed in the right direction. There is still a long way to go; witness the state of markets now and the generally low prices the industry can command for its products. Many people gave up on 2002 before it began and are looking ahead to next year. In a later session at the Paper Summit, Potts himself said that the end is not in sight, although a corner has been turned. Poorly performing mills and even suppliers will have to close their doors before the industry can attract investors' dollars again.

As the song title goes, from which Potts borrowed his title, "Sure Could Use a Little Good News Today", yes, we all could and it is important to reflect from time to time on the things this industry does right. It is being constantly assailed with its list of shortcomings from those outside the industry, not to mention its internal woes: poor markets, environmental pressures, an aging workforce, etc, etc etc.

So all of this to say that there are some bright spots but problems remain, which has probably been the story of the pulp and paper industry, as well as most others, for their entire histories. One thing I've noticed over the years is that this industry as a whole tends to be very insular but that is an issue for another column.

Avenue Louise 326, Box 22 B-1050 Brussels, Belgium Tel.: (32-2) 538.60.40 Fax: (32-2) 537.56.26 Editor's e-mail: grodden@paperloop.com

By and large, the industry has faced up to its problems and is working to solve them. As with some recovery programs; the first step to a cure is admitting there is a problem. However, actions always speak louder than words. As I wrote in a previous column about how the industry had to learn its history lessons the hard way when it came to cyclicality and how columns such as these could be recycled from generation to generation (PPI, January 2002), I only hope that the words presented here will not be applicable a few years down the road.

Next month:
The importance of an "open door" policy.