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Plastics, Paper

Tested by economic conditions and volatile pricing, North America’s largest scrap paper consumers prepare for 2009.

Brian Taylor January 15, 2009

Manufacturers of paper send their products into a wide variety of applications, some of which are cyclical and others that can almost be labeled recession-proof. The differing situations mean that shippers of recovered fiber are well served by keeping tabs on several different economic sectors.

Makers of corrugated containers can experience leaner orders when the industrial, construction and consumer economies slow down. Unfortunately, the current economy is one where several economic sectors are contributing to a tougher sales environment for corrugated mills. (Click here to view the chart.)

Other sectors, such as boxboard and tissue, are less prone to volatility and likely will continue to pulp recovered fiber at a predictable clip.

And then there is the closely watched newsprint sector, where America’s daily newspapers are dueling with electronic media for readership and advertising dollars in a battle that each year seems to result in less newsprint being made.

BOXED IN

Among the major trends within the corrugated box industry has been the long-term offshore drift of the manufacturing sector, which reduces opportunities for the use of corrugated material produced in North American mills.

In 2008 and 2009, a recession affecting the wider overall consumer economy has added to the challenges faced by makers of corrugated boxes and materials.

Smurfit-Stone Container Corp., Chicago, recorded net sales for the first nine months of 2008 that were slightly below what was recorded for the same period in 2007.

In the comments accompanying its third quarter 2008 results, Smurfit-Stone notes that "the global economic slowdown is impacting the U.S. packaging market."

Smurfit-Stone’s reactions have included the shuttering of five converting plants as well as some paper making capacity. "In October 2008, we permanently ceased operations of our containerboard machine at the Snowflake, Ariz., mill and production at our Pontiac pulp mill located in Portage-du-Fort, Quebec," notes the company.

The company’s net sales remained stable in the third quarter of 2008. "North American shipments of corrugated containers on a total and per-day basis were 0.3 percent and 1.9 percent lower, respectively, compared to last year due primarily to container plant closures, actions to improve margins by exiting unprofitable accounts and weaker market conditions," the company says in its SEC filing.

Smurfit-Stone reports a seemingly healthy balance between mill capacity and demand. "Our containerboard mills operated at 99.5 percent of capacity in the first nine months of 2008," says the company, also noting on the recycling front, "Total tons of fiber reclaimed and brokered was comparable to last year."

International Paper Co. (IP), M emphis, Tenn., which in 2008 purchased the containerboard and recycling operations of Weyerhaeuser Co., idled some pulp and paper making capacity in late 2008, citing "the continuing decline in pulp demand from its customers worldwide coupled with a weak economy across the globe."

DE-INKING

Makers of newsprint have invested considerable sums in the past three decades to use more secondary fiber in their product. The attention has been good for paper recyclers, but currently the bigger concern is how many Americans will continue to read daily ink-on-newsprint papers in 2009 and beyond.

At the 2008 Paper Recycling Conference, presenters Bill Moore of Moore and Associates, Atlanta, and Mark Fitzgerald, editor at large of Editor & Publisher magazine, each gave an unflattering portrayal of current newsprint markets.

AMONG THE MISSING?

If you work for or know of a company that you suspect should be on this list but was not contacted (or did not respond), please let us know, and we will make sure to let our readers know. Editor in Chief Brian Taylor can be contacted via e-mail at btaylor@gie.net.

Paper industry consultant Moore noted that newsprint consumption declined more than 10 percent from 2006 to 2007 and that another 7.7 percent drop was forecast for 2008.

Fitzgerald, who covers the newspaper industry in his position, spelled out some of the reasons for the decline. "This is a grim business these days," he said, noting that many newspapers were confronting a documented decline in circulation.

Many daily newspapers continue to report struggles in profitability, advertising sales and maintaining paid subscribers. These factors can cause a newspaper publishing company to use less newsprint.

One of the most noteworthy moves has been made in Detroit, and it is an experiment that does not offer encouragement to producers of newsprint. The Detroit News and the Detroit Free Press (two newspapers with a joint operating agreement) will offer home delivery only three days per week instead of seven starting the first quarter of 2009. Daily editions will continue to be printed for retail purchase.

Such strategies cannot be welcome news for newsprint makers, whose market has been shrinking for several years. In its 2007 capacity report, the American Forest & Paper Association (www.afandpa.org) notes that "United States newsprint capacity reached an all-time high of 7.46 million tons in 2000, but has recorded steady declines since then, falling a cumulative 28.7 percent to 5.32 million tons in 2007. This marked the lowest point for U.S. newsprint capacity since 1980."

The AF&PA says its most recent survey "shows subsequent newsprint capacity declines moderating to 1 percent in 2009 and 0.2 percent in 2010."

NOTHING TO SNEEZE AT

Recyclers who handle fiber grades consumed by tissue mills (and who have a favorable transportation route to serve such mills) will in all likelihood have a more stable market situation in 2009.

The demand for tissue is not as directly tied to employment levels or industrial production.

There can be variables, however. SCA Tissue North America, for instance, makes 

SAVE THE DATE

The 2009 Paper Recycling Conference marks the 10th anniversary of the event, which brings together paper recyclers and mill buyers.

The first Paper Recycling Conference was in Atlanta in June of 2000. The 10th edition returns to the city, June 7-9, 2009, at the Hyatt Regency Atlanta.

Program details and registration information will soon be available online at www.PaperRecyclingConference.com.

tissue products for what it calls the "away from home" market, so its sales can be tied to the occupancy rate of hotels and office buildings, among other sectors.

Overall, however, tissue makers benefit not only from demand that is unlikely to evaporate suddenly, but more recently from pro-environmental sentiment that has gained prominence in the U.S.

SCA has tied into that sentiment, commissioning a survey to determine how receptive Americans are to products environmentally friendly products.

In May of 2008, SCA released the results of the survey, conducted by Harris Interactive, which showed "that at a time when consumer spending has dropped in many categories, Americans are willing to pay 17 to 19 percent more for environmentally friendly products and services," according to its news release.

"The results of this study demonstrate that American consumer interest in the environment is more than just lip service or a passing inclination," said Don Lewis, president of SCA Tissue North America, based in Philadelphia.

Of those surveyed, 57 percent said they would pay more for products made from recycled materials and would be willing to spend an average of 17 to 19 percent more for each of these "green" products.

A favorable public perception of paper products overall can only help to sustain the markets that keep recovered fiber in demand in North America.

The author is editor-in-chief of Recycling Today and can be contacted at btaylor@gie.net.

 

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