NewPage issued a statement attributing the closure to several factors. “Our decision to close the mill is the result of a weak economy, the continued effects of low-priced imported products and sky-rocketing costs,” said NewPage chairman and chief executive officer Mark Suwyn. “The coated paper market is being hit with a slowdown in demand as the uncertain economy is reflected in a reduction in print advertising. At the same time, we are experiencing higher input costs for raw materials and transportation driven by oil and natural gas prices. To balance the somewhat reduced demand in a manner that helps us reduce costs, we are closing our mill in Kimberly, Wis.”
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In June, Sappi Fine Paper North America in Boston, Mass., announced that it would shut down a paper machine and suspend operations at its pulp mill in Muskegon, Mich., affecting 365 workers.
The situation at the NewPage and Sappi Fine Paper isn’t restricted to U.S.-based paper mills. In mid-September, UPM-Kymmene Oyj, Europe’s second-largest papermaker, announced it would close a pulp and paper mill in Finland, resulting in the loss of about 1,600 jobs in the next two years. “Demand growth for paper in traditional markets has slowed down,” said a statement released by the company in September. “Overcapacity still exists in Europe and slowing economic growth imposes further challenges. Prices of wood, energy and fuels have increased significantly in the last two years.”
In Ontario, Canada, Thunder Bay Fine Papers announced it is in danger of closing unless $10 million in funds can be raised by early October. The closing would leave 320 people out of work.
These are just some of the closings announced at the end of 2008, begging the question: What can the struggling pulp and paper mills do to ensure survival?
The idea of transforming the mills into biorefineries—factories where a variety of alternative fuels and chemicals can be produced—has been talked about for some time. The problem is that many pulp and paper mills are nearly a century old and simply can’t compete with companies that are equipped with more modern, cost-efficient machinery.
Furthermore, developing a full-scale biorefinery could cost anywhere from $50 million to $200 million.
Despite the obvious hurdles, some companies are beginning to venture down the biorefinery path by taking small steps, beginning with cutting energy costs. “In the near term, mills seem to be taking the intermediate step of putting in biomass boilers and gasification systems to take the heat off of energy costs,” says Kris Plamann, director of business development for Kaukauna, Wis.-based Baisch Engineering Inc., which serves the pulp and paper, biofuels and other industries. “If the pulp and paper industry is to survive in this country—and it will—it’ll just look a lot different. They have to become innovative biorefineries, no question. Really, it comes down to two questions for the mills in regard to how they are going to respond to the rising cost of energy. What can they produce in addition to paper and how can they come up with, or who can they partner with, to raise the available capital to create a biomass-fired energy plant or biorefinery?”
Feedstock for Thought
Rising energy costs are like a double-edged sword for pulp and paper mills, as they have increased the global demand for wood and pushed prices higher. “The hot new market for wood fiber is that of biomass energy; demand in Europe and North America is expected to soar over the next 10 years,” says Håkan Ekström. “With the supply of wood fiber relatively inelastic, at least in the short term, this sudden new demand would normally be expected to push wood prices to unprecedented new heights.”
Ekström is principal of Wood Resources International LLC, a consulting firm providing forest market analysis and wood price reporting for the forest industry worldwide. For the past 22 years he has worked in various capacities related to wood products utilization, international forest products marketing and global wood supply. He is also the editor of the Wood Resource Quarterly and the North American Wood Fiber Review.
Wood costs typically account for about 50 percent of the production costs for a pulp mill, which often determines a region or a company’s competitiveness, Ekström says. Wood fiber prices have been rising steadily for the past six years, reaching record levels in the second quarter of 2008. “Expanding demand for renewable energy may potentially drive wood fiber prices even higher in many countries in the near future,” he says. “Since 2002, global average prices for pulpwood have risen 67 percent for softwood and 64 percent for hardwood, in U.S. dollar terms.”
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