Of course, mill capacity continues to shrink as their new owners downsize and consolidate. Mark McCready, senior forest industry services consultant with Pöyry (www.Poyry.com), a global forestry and energy consulting and engineering firm, provided the following data, which sheds some light on the metrics in this industry:
• 2007 U.S. uncoated freesheet capacity was projected at 12.5 million tons. Mid-year plant closings, mainly by International Paper, will reduce this capacity this year by about 240,000 tons.
• Mid-year closings and suspensions of production will cause a major tightening for coated mechanical and coated freesheet in the next six months or more (last year reported in the press as an oversupply both here and abroad). Montreal-based Tembec’s closing of its St. Francisville plant in Louisiana alone took 325,000 tons out of the North American supply, now reduced to about 5 million tons.
For some perspective, a 2 lb., 100,000-copy best-seller would require 100 tons of paper, scarcely a ripple on the sea of available supply. Even 10 million copies of “Harry Potter” checks out at 3 decimal points of mill capacity.
Jerry Caruso, managing director and head of the Paper Industry Group at investment banking services firm Goldsmith Agio Helms/Lazard Middle Market, cited 376 mergers and acquisitions in the global paper industry in the past five years, in the August issue of Paper 360 (the member magazine for TAPPI, the leading association for the worldwide pulp, paper, packaging and converting industries, and the Paper Industry Management Association). He notes that “a new strategy has emerged” in the paper business. “Abandoning the old model of vertical integration, companies facing an increasingly competitive global market have been shedding non-core assets to free up capital and management, to focus on core competencies and ways to grow their businesses,” says Caruso.
Why is this happening? The Center for Paper Business and Industry points out that North America “remains one of the largest world regions for paper consumption and enjoys significant fiber resources.” Yet, in its 2006 year-end industry summary, it says that “the composite financial performance of the industry has been pitiful looking back and, without a sustained upturn, will further dissuade future investment.”
Eugene G. Schwartz is editor at large for ForeWord Reviews, an industry observer and an occasional columnist for Book Business magazine. In an earlier career, he was in the printing business and held production management positions at Random House, Prentice-Hall/Goodyear and CRM Books/Psychology Today. A former PMA (IBPA) board member, he has headed his own publishing consultancy, Consortium House. He is also Co-Founder of Worthy Shorts Inc., a development stage online private press and publication service for professionals as well as an online back office publication service for publishers and associations. He is on the Publishing Business Conference and Expo Advisory Board.