AFPA Capacity Survey Shows Glimmer of Hope

The recently released capacity report survey by the American Forest & Paper Association shows some modest optimism that some production will return. However, the overall capacity for the forest products industry is expected to remain somewhat flat.

After three consecutive years of contraction, the U.S. paper and paperboard capacity held stable last year at around 100 million tons. This was one of the facts gleaned from the AFPA’s 45^th Annual Survey of Paper, Paperboard and Pulp Capacity.

Paper and paperboard capacity previously contracted 1.9 percent in 2001, 1.3 percent in 2002, and 0.4 percent in 2003. Additionally, the number of permanent mill shuts declined from 13 in 2002 to 12 in 2003 to 7 last year. Machine closures dropped from 40 in 2002 and 39 in 2003 to 21 last year.

The survey indicates that capacity will expand during the projection period, increasing by 0.5 percent this year, 0.3 percent in 2006 and 0.2 percent in 2007. The figures translate into an annual capacity increase of 0.3 percent. In comparison, during the 1990’s paper and paperboard capacity increased at an average annual rate of 2.2 percent a year.

Broken out by individual grades, newsprint capacity is expected to continue its decline. According to the AFPA, last year was the fourth straight year for capacity declines, from more than 6.9 million tons in 2003 to 6.6 million tons last year, about a five percent drop.

Further, AFPA forecasts continued decline of around 500,000 additional tons this year, bringing the total for 2005 to 6.1 million tons. At that point newsprint capacity would be at its lowest levels since the late 1980s.

The association attributed the decline to two key reasons: a large paper machine was permanently closed at the end of 2003, accounting for half the decline; and capacity continued to shift from newsprint to uncoated mechanical paper.

Printing and writing paper capacity rebounded slightly last year, although it followed a steep drop in 2003. According to the survey, printing and writing paper production peaked in 2000 at 27.6 million tons. However, by 2003 it had fallen to 25.5 million tons, a drop of 8 percent within the three years.

Production did increase by 1 percent last year, and production is expected to increase by an additional 2 percent this year.

The tissue paper sector is one area that has seen a significant amount of activity in the forest products industry. According to the annual survey, five new tissue machines came on last year. However, several machines were closed the prior year. The trade off resulted in tissue paper capacity increasing by 0.9 percent last year.

One new tissue paper machine is expected to come on line this year, the SCA tissue mill, while another machine that was permanently closed in 2003 is expected to restart production.

Additionally, machines that came on line in 2004 will continue to augment tissue paper capacity this year as they ramp up and operate for the full year.

As a result, tissue paper capacity should grow by 3.3 percent this year. While capacity figures should be sharply higher this year, the lack of any new capacity after this year will slow capacity growth to 0.5 percent in 2006 and 0.1 percent in 2007.

For paperboard grades, recycled paperboard, excluding containerboard and gypsum wallboard facings, declined by 2.5 percent last year to 5.9 million tons. The reduction reflects the closing of several machines in 2003 and the shutdown of two machines last year.

Capacity to produce recycled paperboard is slated to decline an additional 2.3 percent this year. This partly reflects the lagged impact of a machine that closed last year, which will not have a full-year impact until this year. Another negative factor in the market is the closure of two additional recycled paperboard machines this year. By the end of the survey period recycled paperboard capacity is expected to level off.