February 2006

Brown Paper Reporter

www.brownpaper.com

800.221.4386

 

 

Carin Triozzi—7th

Machine Closure

 

Weyerhaeuser Shutting Two Paper Machines in Canada

 

Weyerhaeuser Company will permanently close two paper machines in Canada, removing about 430,000 tpy of uncoated paper.  The closures will affect 770 workers.  “We recognize that this news and its timing are hard on our people, but market conditions leave us no choice as we make urgent changes to improve the competitiveness and lagging financial performance of this business,” said Steven R. Rogel, Chairman, President & CEO.

Weyerhaeuser said that it will shutdown the D1 paper machine at the Dryden Pulp & Paper mill in Ontario on April 1, 2006, removing 155,000tpy of uncoated freesheet.  About 80 workers will be   affected by this machine closure.

 The Dryden mill will continue to run its other machine, which will produce about 332,000 tons of white paper, Weyerhaeuser said.  Dryden’s bleached market pulp mill and converting sheeters will continue to operate, the company added. 

The other closure involves the Prince Albert pulp and paper mill in Saskatchewan.  In early         October, Weyerhaeuser announced an “indefinite     closure” of the mill to take place Jan 3, 2006.  Weyerhaeuser has revised this decision to be a “permanent closure” of the paper mill at the end of

2005.

The Prince Albert pulp mill, which is being offered for sale, will continue operating until spring to minimize risk of damage caused by cold winter weather, Weyerhaeuser said.

The Prince Albert facility has an annual capacity of 280,000 tons of uncoated paper and 130,000 metric tons of market pulp.  It employs 690 hourly and salaried employees.

 

January/February 2006 PaperAge

Uncoated Free Sheet

With the continued fall-off in North American demand, Producers have aggressively managed capacity in hope to better prices in 2006.

 

Through 2005, the uncoated free sheet paper sector remained under siege as demand progressively shrank.  However, continued supply side management on the part of producers kept operating rates at levels that have allowed producers to prevent pricing from plummeting.  Despite an unsuccessful attempt to boost prices by $40/ton in  September, another move is underway to increase prices going into 2006.  This increase, driven by rising costs, some firming of U.S. demand, and lower end-user inventories, stands some chance of success, but the outlook for 2006 is anything but rosy.

 

The root of  the problem facing U.S. and Canadian mills is that North American demand through October 2005 is down 4.1% vs. 2004 levels.  This fall-off in demand, while not particularly surprising given the downward trend that began in 1999, is particularly ominous following the modest 0.5% increase posted in 2004, which reversed a five-year slide.

 

Even though the 2004 increase was dismal by “normal” or historical standards for growth in demand during a period of economic growth, there was hope that demand would also post an incremental gain in 2005.  The thinking was that the gains in 2004, and the hope of gains in 2005, were a result of the economy expanding and some easing of competitive losses.  The drop merely highlights the fact that fundamental underlying demand is losing ground to electronic information systems and to competitive grades.

 

Challenge in 2006

The challenge for producers is that 2006 is likely to be a tougher year than 2005 for all printing and writing papers due to a rise in U.S. postal rates, higher costs, and uncertainty about the strength of the economy.

 

IP and Weyerhaeuser—the two largest producers with 45% of North American capacity—have begun to close significant amounts of capacity.

The No. 3 North American producer, Domtar, closed all or most of two printing paper mills in Ontario in November.  These closures total about 4% of capacity, and thus if demand contracts in 2006, further closures are likely.

 

However, with the shutdowns, despite any real sign of seasonal pickup, uncoated free sheet prices stabilized at published prices under $700/ton for offset roll grades and under $800 for cut-size grades, with transaction prices about $40/ton less.  The latest increase, announced by IP and effective for January, would increase prices $50-$60/ton, excluding cut-size papers.

 

Excerpt from:January/February 2006 PaperAge

By Harold M. Cody

 President’s Day

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