Domestic Paper, Board Capacity Drop in 02

U.S. paper and paperboard capacity fell in 2001 and 2002, the first time that total industry capacity declined in consecutive years, according to the 43rd Annual Capacity Survey of the American Forest & Paper Association.

The survey, released Feb. 14th, showed declines of paper and paperboard capacity of 1.9 percent in 2001 and 1.3 percent in 2002. "The contraction reflects the industry's efforts to adjust to stiff foreign competition and a period of cyclically weak paper and paperboard demand," the survey said.

Total 2002 paper and paperboard capacity of 100.5 million tons has been revised downward by 2.5 percent from the projection of the prior survey. Two factors accounted for the revision: (1) removal of capacity that closed in 2001, but had not yet met the "one year rule," which was still in effect at the time of the survey; and (2), removal of capacity that permanently closed in 2002 and was immediately removed from the survey under its new ground rules.

Under prior ground rules, unless shuttered mills were immediately dismantled, they had to remain closed for one year before their capacity was removed from the survey. Current rules call for AF&PA to remove immediately from capacity those shut machines where the owner's intention to close them permanently has been clearly stated in a public announcement.

As a result, two years of capacity closures have been removed from this survey. A total of 40 mills and 104 machines were permanently closed in the 2001-2002 period.

Looking ahead, the survey indicates that paper and paperboard capacity will remain essentially unchanged in the next three years, declining by 0.5 percent in 2003, and then increasing 0.8 percent in 2004 and 0.4 percent in 2005.

Newsprint capacity fell from almost 7.5 million tons in 2000 to just over 7.0 million tons in 2002. The decline reflects a change in capacity from newsprint to groundwood grades and the shutdown of several machines, according to the survey. Newsprint capacity is projected to fall another 4 percent to 6.7 million tons by 2004, mainly due to this year's major newsprint-to-groundwood conversion projects.

Printing-writing paper capacity, now at 27.3 million tons, fell about 2.1 million tons in 2001 and 2002, according to the survey. This is the lowest level for this grade since 1994. Capacity is scheduled to remain unchanged in 2003 before climbing 1.6 percent next year and 0.5 percent in 2005.

Capacity for uncoated groundwood rose 10.3 percent in 2002 to 2.0 million tons, and is projected to grow another 5.4 percent in 2003 and 3.4 percent in 2004 and remain unchanged in 2005. Coated groundwood capacity grew 2 percent in 2002 to 5.04 million tons.

Coated freesheet capacity declined last year to about 5.0 million tons, or about 7 percent. Another 2.4 percent drop is expected this year, at which time capacity will have fallen by about 12.6 percent below its peak in 2000. The unprecedented plunge can be attributed to more than half a dozen machine and mill closures, according to the survey.

 Capacity for uncoated freesheet fell to 13.6 million tons in 2002, the lowest level in almost 10 years. Capacity is expected to increase to 14.0 million tons by 2004, with no appreciable change in 2005. The increase stems from the startup of a new machine that is replacing several smaller machines.

Tissue paper capacity continues to grow, but at a slower rate than in previous years. One new tissue machine is scheduled to come on line in 2003, and four new machines have been announced for 2004. As a result, capacity is slated to grow at an average annual rate of 1.9 percent in the 2003-2005 period, compared with a 2.2 percent average annual growth rate in the 1992 to 2002 period.

The survey showed that kraft paper capacity will continue is pattern of decline due to plastics penetration. Unbleached kraft paper capacity is projected to fall at an average annual rate of 0.9 percent in the 2003-2005 period. Bleached kraft paper capacity is expected to decline by 5.4 percent in 2003 and remain stable the next two years.

Paperboard Grades

U.S. containerboard capacity fell by 1.0 percent in 2002 and is expected to fall at an average annual rate of 0.1 percent in the next three years. Linerboard capacity dropped by 0.9 percent in 2002 and is projected to decline 0.7 percent in 2003 and then hold stable in 2004 and 2005.

Capacity to produce corrugating medium fell l.3 percent in 2002, and is expected to be about the same level in 2005. Bleached board capacity rose by 0.8 percent in 2002. With no new machines on the horizon, bleached board capacity is expected to remain unchanged in the next three years.

Market Pulp

Total market pulp capacity is slated to fall by about 200,000 tons during the period 2003-2005 to an estimated 10.3 million tons, the survey showed. Major changes to the sub-grades include substantial declines in dissolving pulp capacity due to the closure of a facility in the South.

Recovered Paper