Filed under: Thurso Pulp Mill

The Ottawa Citizen: “The Future Looks Fluffy”

by on Sep 1st, 2010

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Driven by the imperatives of globalized economics and digital technology, Ottawa’s pulp-and-paper heritage has been reduced to a remnant.

The forestry industry that built the Ottawa-Gatineau economy appears to be on its last legs.

Hammered by the Internet’s growing grip on personal communications, the rich Canadian dollar and intense competition, the forestry industry continues to slash operations in the hopes of finding a smaller, profitable core.

The industry, which employed 5,000 people just 20 years ago, today has dwindled as Domtar-Eddy mills in Ottawa, an AbitibiBowater mill in Gatineau, a Smurfit-Stone mill at Portage, and Domtar mills in Cornwall slashed staff and finally closed. Fewer than 1,200 jobs remain, focused on a few niche markets far removed from the newsprint and lumber products that drove the industry for 150 years.

Next to go could be 200 jobs at Papier Masson, a newsprint operation in the east end of Gatineau, which was founded James Maclaren, a pulp and paper pioneer, and later owned by Noranda.

White Birch Paper of Connecticut, Papier Masson’s current owner, has hired Lazard Freres, the New York private banker that helped sell Nortel assets, to find new owners for three mills in Quebec and one in the U.S.

White Birch, operating under bankruptcy protection since February, opened the doors to prospective bidders last month.

The threat is there will be no bidders and that some mills will close in a major restructuring, adding to the thousands of lost jobs in the industry.

Certainly, the relentless march of the Internet into every corner of human communications is destroying demand for newsprint, telephone directories, copying paper, books, magazines and glossy printed advertising across the Western world.

The result is that mills that employed thousands and drove the industry for more than 80 years are being sold for less than $3 million each.

One huge AbitibiBowater mill in Thunder Bay sold for just $100,000 because of environmental cleanup issues.

The recently upgraded machinery in four former AbitibiBowater mills sold for just $5 million — not much more than scrap value.

The real value now is in the land, including about 40 acres controlled by Domtar in the heart of Hull across the Chaudière Bridge and Chaudière Island into Ottawa.

However, while the Ottawa regional industry is in deep trouble, new profitable product lines are emerging and demand for older products is rebounding, at least temporarily.

The trouble is that most of the Ottawa regional mills are too big or too old to be revived. With governments taking a hands-off approach — after spending billions bailing out GM and Chrysler — bankruptcy courts will decide the fate of underfunded pension plans, unpaid severance and struggling suppliers.

The federal government finally rolled out a $170-million investment program this week, too late for most Ottawa companies.

“The forestry industry employs more people in more places across Canada than the auto industry, but governments have turned their backs,” said Kim Ginter, a vice-president of the Communications, Energy and Paperworkers union.

“Many mills are competitive, but need investment. We still have the best source of fibre in Canada, but, once the mills go, it will be very hard to get them back.”

For the few survivors, there could be light at the end of the tunnel.

After years of declining sales and heavy losses, sales of many forestry products companies rebounded in the last six months.

It wasn’t much, just two per cent in the case of Domtar and other companies, but it surprised analysts and had business leaders and bankruptcy monitors scratching their heads. They had expected declines of at least two per cent.

Sales of AbitibiBowater rose 2.6 per cent between April and May, though the wounded newsprint giant is mired in bankruptcy.

Even before it shut the huge Gatineau mill this spring, AbitibiBowater had slashed newsprint production by 3.4 million metric tonnes or 32 per cent since 2007. It also sold off $940 million in assets, including $615 million in a Quebec power company.

A surprised bankruptcy monitor reported last month that White Birch sales were not significantly hurt despite the stigma of defaulting on loans and pension obligations and seeking court protection from creditors.

Sales at Papier Masson were 18 per cent higher than the monitor predicted for the June quarter, and the White Birch cash burn was 70 per cent lower than forecast.

The reason is basic economics: Deep, permanent cuts to production mean that prices jump with the smallest improvement in sales. While demand for newsprint continues to fall, the deep production cuts of the 2008-2009 recession were deeper than immediately necessary.

The result is the price of pulp was more than 50 per cent higher in the June quarter from a year earlier, and Domtar is running hard in a bid to keep up.

Domtar chief executive John Williams told an industry conference: “If you look at tissue, if you look at toweling, if you look at printing and writing, in the geographies where we are selling, those markets are actually growing. So we see a long-term pretty positive trend for pulp.”

His company converted a Massachusetts mill from newsprint pulp to fluff pulp.

“We currently sell 150,000 tons of fluff pulp, (and) we’ll move up to 444,000 tons (by December 2010.)

“If you take fluff pulp, it’s largely used in diaper markets and in the incontinence marketplace. That’s a very fast-growing market both in developed economies and developing countries because of the demographic.”

Fluff pulp doesn’t have the brawny feel of the traditional products like lumber and newsprint that defined the industry and Stompin’ Tom Connors is unlikely to add a new verse about fluff pulp or air-laid superabsorbent paper to Big Joe Mufferaw, his ballad celebrating the Ottawa Valley logger and raftsman, but fluff pulp is immune to the Internet.

Glatfelter, a Pennsylvania specialty paper producer that makes tea bags and labels, bought the Concert Industries plant near the Gatineau airport in January for $246.5 million. It employs 285 people making super-absorbent paper sold to companies like Procter & Gamble and Johnson&Johnson.

It is primarily used in feminine hygiene products, a market that is growing about five per cent annually as the combination of growing prosperity and a huge young population opens new markets.

Farther east in Thurso, the moribund Fraser Pulp mill, once owned by James Maclaren, is being revived after it was closed a year ago. Fortress Paper is converting the mill to produce cellulose used in rayon, a cheaper, more environmentally-sound alternative to cotton.

“The forest products industry will continue to decline and there will be more pain,” Fortess founder Chad Wasilenkoff said.

“But there are still specialty niche production operations available at attractive prices which can yield good profits.”

While buying the Thurso pulp mill makes sense, he said that buying newsprint mills in North America did not. “This is still an industry that is profitable only about one year in 10.”

The share price of his company has quadrupled in the last year in part because of two profitable mills in Europe that produce paper for the banknote and wallpaper industry.

Better still is the Kruger Products mill on Rue Laurier next to the Museum of Civilization. For much of its 70-year history, it had a water tower with a White Swan logo that made it a landmark.

Today it is the sole survivor of the E.B. Eddy-Domtar mills, which, for 160 years, stretched from the Museum of Civilization site to the Chaudière Bridge and onto Lebreton Flats.

Three Kruger papermaking machines roar around the clock, turning out Spongetowels, Scotties and White Swan industrial towels.

Kruger employs 475 people at the mill and another plant in Hull that processes and packages the material.

It is spending $4.8 million with Quebec government assistance to capture lost steam, reduce operating expenses and reduce the carbon footprint of machines that have been running for 60 years.

With backing from governments, companies like Domtar are investing in new technology to make operations cleaner, greener and more efficient.

Domtar is investing $32 million in new technology to create nanocrystaline cellulose used in optically-reflective films, high-durability varnishes and bioplastics.

The biggest problem for the North American newsprint mills is they are situated in the wrong places.

There is growing demand in developing countries, but newsprint is heavy and expensive to ship. This spring, Canadian newsprint sales to Asia tripled, with two-thirds of the business in India, as buyers stepped aggressively into markets to rebuild inventories depleted during the recession.

No one expects this trend to continue, however. The newsprint industry is still bracing for reductions averaging four per cent annually in demand.

“The paper industry is not going to die,” says Martine Hamel of the Pulp and Paper Products Council. “It faces major challenges, which will mean it will continue to get smaller and focused on different products.

“But the decline will eventually level off and we will still have an important industry and significant employer.”

By Bert Hill for The Ottawa Citizen. September 1st, 2010.

SOURCE:
The Ottawa Citizen: “The Future Looks Fluffy”

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