The North American graphic paper industry, which includes printing and writing paper and newsprint, is in the midst of a significant structural change. While production figures for these graphic papers have been dropping throughout the past decade, it appears that the decline is accelerating.
The American Forest & Paper Association (AF&PA), Washington, reports that U.S. per-capita newsprint consumption has dropped from approximately 92 pounds per year in 2000 to about 20 pounds per year in 2015.
According to Chip Dillon, a partner with the equity research and consulting firm Vertical Research Partners, headquartered in Stamford, Connecticut, North American newsprint production stood at 7 million tons in 2015 compared with production of 18 million tons in 1992.
The AF&PA says that since 2014 more than 1.5 million tons of newsprint have been removed from the domestic market, either through the closure of paper machines or by converting production to other grades of paper or paperboard that have a healthier outlook. The net result is that newsprint now makes up roughly 5 percent of the domestic paper and paperboard market, the association says.
Additional companies that operate assets in the newsprint sector are considering either shutting down these machines or investing capital to convert some of them to produce paper and paperboard packaging grades.
The move toward converting from newsprint production to packaging grade production has been significant over the past several years. A few years ago, Derek Mahlburg, a senior economist with Boston-based RISI, forecasted that between 2011 and the end of 2014, roughly 925,000 metric tons of newsprint capacity would be converted to packaging grades, with more than half of the conversions—468,000 metric tons—scheduled for 2014 alone.
Since Mahlburg made that forecast, other conversion projects have been announced, further magnifying the shift from newsprint to packaging grades.
This trend is not limited to North America; Western Europe also is confronting a bleak outlook for newsprint and printing and writing paper, with paper mills there having seen a number of newsprint-to-paperboard conversion projects.
One of the first companies to announce that it would shift from producing newsprint to producing packaging grades was Abitibi- Bowater (now called Resolute), headquartered in Montreal. The company announced in 2009 that it intended to convert newsprint capacity at its Coosa Pines, Alabama, mill to instead manufacture coated and specialty papers in addition to lightweight containerboard.
Dillon says, “The asset was going to zero,” prompting the decision to undergo the conversion.
However, the company discontinued the project in early 2011. In deciding to halt the effort, Richard Garneau, president and CEO of AbitibiBowater at that time and who currently holds those roles with Resolute, said, “Coosa Pines has made progress in the production of recycled lightweight and ultra-lightweight packaging and linerboard.” He added, “Upon review, however, the substantial capital investment that would be required at the site to make it low cost in these grades could not be justified.”
“In North America, the term lightweight has been primarily used in reference to the basis weight of the paper, with little or no emphasis on strength. What we’re talking about is a disruptive technology that is capable of producing low basis weights (lighter paper) with sustainability and strength characteristics unlike anything in corrugated packaging today.” – David Boles, Atlantic Packaging
Despite that setback, other companies announced similar projects to convert machines that produced newsprint to produce packaging grades.
In late 2012 the Canada-based company Atlantic Packaging Products announced plans to reopen its Whitby, Ontario, newsprint mill to produce 300,000 tons of 100-percent-recycled lightweight paper that could be used to make corrugated packaging products. The mill had been shut down in 2010 because of the lack of markets for its finished newsprint. Since reopening, however, the company has struggled to get the mill up to speed.
When he announced the decision to reconfigure the operation, David Boles, president of Atlantic Packaging, noted, “In North America, the term lightweight has been primarily used in reference to the basis weight of the paper, with little or no emphasis on strength. What we’re talking about is a disruptive technology that is capable of producing low basis weights (lighter paper) with sustainability and strength characteristics unlike anything in corrugated packaging today.”
Other paper companies facing limited market opportunities for newsprint also have announced conversion projects, including SP Fiber, which converted two recycled newsprint machines at its Dublin, Georgia, mill, and one newsprint machine at its mill in Newberg, Oregon, to make a lightweight packaging grade of paper.
However, after acquiring SP Fiber in the third quarter of 2015, Norcross, Georgia-based WestRock shut down the Newberg mill in late 2015. WestRock still operates the Dublin mill.
Part of the reason the SP Fiber conversion project was not successful, according to Dillon, is that General Electric, which was the company’s chief creditor, “did it on the cheap. They did it because they didn’t want to write off the asset.”
However, Dillon adds, “[SP Fiber] did a fantastic job and got some value out of it.”
Some projects, however, appear to be working, at least initially.
UP Paper LLC, Manistique, Michigan, a newly formed company, has acquired the idled FutureMark paper mill in that city. The mill produced printing and writing paper before it was forced to close because of economic problems in early 2015.
The mill reopened earlier this year and appears to be ramping up well. Lars Dannberg, UP Paper president and CEO, says the mill is now producing roughly 120,000 tons of kraft paper products per year. The niche end product is made by using a combination of old corrugated containers (OCC) and double-lined kraft (DLK) cuttings, he says.
“We have a fast machine, and we are well-equipped,” he says. “The equipment is perfect for our products. It has been updated a lot. There is a new headbox, and the recycling plant is up to speed.”
Dannberg continues, “For us it was a minimal investment. We saw the equipment that was used in the past, and we felt we could use it.”
He also says that because UP Paper has no debt, the company is able to be competitive on price and cost.
Another advantage of the Manistique mill, he says, is that many converters are located nearby.
While UP Paper has been able to carve out a niche for itself as a result of its conversion, challenges remain. “Markets and waste paper supplies are always a concern,” Dannberg says. “We are looking for contracts. We are trying to get as many partners as possible.”
One of the most recent conversion projects comes from Canada-based Kruger Inc., which announced plans to invest $250 million to convert one of its newsprint machines at its Trois-Rivieres mill in Quebec to produce recycled lightweight linerboard.
The company says the project includes modernizing one of the mill’s paper machines, enabling Kruger to produce 360,000 metric tons of 100-percent-recycled lightweight linerboard per year in 2017. A portion of the linerboard will be sold to Kruger Packaging’s box plants in LaSalle, Quebec, and Brampton, Ontario, while the remainder will be sold on the open market.
Regarding the Kruger project, Dillon says the Quebec government is heavily invested, providing $190 million in financial support, including an $84 million loan and $106 million through its investment agency that will give it a 25 percent ownership interest in a new company that will combine Kruger’s containerboard and packaging operations.
“They are putting money into the mill to make linerboard quality,” he says.
Dillon adds that part of the reason the government has taken such a large stake in the project is to protect more than 250 jobs at the mill.
Despite the provincial government’s role in assisting with the Kruger project, in general Dillon is bearish about the viability of many of these conversion projects in North America. One key reason, he says, is that independent converters for the products produced by these mills are lacking. Even if a company successfully produces packaging paper following a machine conversion, finding a plant to convert it into a finished product is more difficult because fewer independent companies are providing converting services.
Factors to consider
Even in the face of UP Paper’s success, financial analysts appear to view conversions from newsprint to packaging grades with pessimism. According to a report by Vertical Research Partners released in 2015, the company has “continued to hear from industry contacts that product being sold from converted recycled newsprint machines has limited use in the containerboard and box world. Almost all of this product is being sold as ‘bag paper’ or lightweight corrugated medium, with little being sold as linerboard. The portion that is ‘linerboard’ seems to be for light-payload boxes.” The Vertical Research Partners report continues, “In other words, recycled newsprint conversions do not factor in where it matters: standard grades of linerboard. (Remember, linerboard comprises more than two-thirds of a typical box’s weight and is the main factor in box pricing.) With North American newsprint capacity down some 10 million metric tons, or two-thirds, from its peak 25 years ago, we can still say that conversions from either groundwood virgin or recycled newsprint machines have not proven to work in producing standard linerboard grades.”
An engineering consultant who has worked on one newsprint-to-packaging grade conversion project says a number of challenges must be addressed when transitioning from paper to paperboard production, including possibly having to improve the drying system and to install spoiler bars and other improvements designed to increase drying capacity for heavier weight packaging grades; investing in OCC pulping, cleaning and screening systems; and installing a white water system segregation if the mill makes grades where mixing water systems is undesirable.
While conversion projects in North America have encountered some challenges, European projects appear to be more successful. Dillon says one key factor is that the industry’s structure in Europe is different than in North America. Integration between mills and box plants is less common in Europe, whereas in North America, because there are fewer independent box plants, newcomers can be locked out of the market.
Also, perhaps more endemic to the U.S. model versus the European model, “In Europe, the stores are smaller and the boxes don’t need to be as sturdy,” Dillon says.