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					         PAPER WATCH
______________________________________________News from Pulp & Paper Industry around the World

                                  CORPORATE                            competitive            operating
                                                                       environment.        Due        to
                                                                       Kimberly-Clark's      significant
                                  I. S&P bulletin: Kimberly-
                                                                       free cash flow generation, the
                                  Clark's strategic
                                                                       company has maintained key
                                  initiatives have no                  credit protection measures
                                  immediate ratings effect             such as total debt to EBITDA
                                                                       and FFO to total debt in line
                                  Standard & Poor's Ratings            with the current ratings. In its
                                  Services has said that its           outlook, Standard & Poor's
                                  ratings   and    outlook     on      does not expect Kimberly-
                                  Kimberly Clark Corp. (AA-            Clark to implement further
                                  /Stable/A-1+)     are       not      significant        restructuring
                                  affected by the company's            initiatives, and that operating
                                  announcement that it plans to        margins will begin to stabilize
                                  implement strategic initiatives      in fiscal 2006.
This Week                         that will result in after-tax
Corporate                1-2      charges of between $625
                                                                       II. S&P affirms India's
                                  million and $775 million.
Environment              2                                             Ballarpur Industries at
                                  These charges are expected
                                  to be incurred over a three          'BB-'; outlook stable
Investments              3-4      and one-half year period and
                                  could result in annual cost          Standard & Poor's Ratings
Tissue                   4                                             Services said today it affirmed
                                  savings by 2009 of between
Report                   5-7      $300 million and $350 million.       its 'BB-' long-term corporate
                                                                       credit rating on Ballarpur
CEO Interview            7-9      Specific        cost      savings    Industries Ltd., a pulp and
                                  initiatives include plans to         paper manufacturer based in
                                  reduce        the      company's     India. The outlook is stable.
                                  workforce by about 10% by            "The ratings on Ballarpur
                                  2008 and close approximately         reflect     the       company's
                                  20 manufacturing facilities.         significant domestic market
                                  The company also plans to            position, and the positive
                                  increase       investments      in   growth prospects for the
                                  business segments such as            domestic uncoated writing
                                  child     care    and    mid-tier    and printing paper market,"
                                  diapers,       and     accelerate    said Standard & Poor's credit
               Issue No: 66       investments in developing            analyst Cheow Hon Lee.
                                  and       emerging       markets.    "These       strengths      are,
              August 8, 2005                                           however,      offset   by    the
                                  Kimberly-Clark's             R&D
                                  expenses will also increase by       company's        high     capital
                                  about 50% to more than $400          expenditure       requirements,
                                  million by 2009. These actions       earnings exposure to price
                                  help     address     the   highly    volatility,   and     increasing
                                  competitive             operating    competition from imports in
                                  environment, particularly in         the coated WPP market," Mr.
                                  its personal care segment in         Lee added.
                                  North America and Europe.
                                                                       Ballarpur is a leading player in
                                  These      initiatives   are  in     the    Indian     writing   and
                                  response to significant margin       printing      paper       (WPP)
                                  pressure from higher raw             segment,      with    an   18%
                                  material       and     commodity     market share, and the coated
                                  costs, and from limited pricing      paper market, with about
          compiled by                                                  45%         market        share.
Corporate Communications @ BILT   flexibility given the highly
                                                                       Ballarpur's favorable market



                                               1
position is attributable to its        volatile price cycles," said Mr.   be 38 Mt in the first half of
relatively large and integrated        Lee. "We expect the company        the year. Forecasts have been
production             capacities      to maintain moderate funding       revised downwards for CDM
compared with other domestic           practices in its overall growth    and JI, and expected to total
manufacturers.        A      wide      strategy. It is also based on      €420 million and €57 million
product      mix    and     well-      the expectation that there will    respectively. A market for
established          distribution      be no unexpected significant       secondary CDM transactions,
network        reinforce      the      decline in domestic import         with no direct link to specific
company's market position.             tariff on paper products."         projects, is expected to see
                                                                          about €43 million in 2005.
Nevertheless, the ratings are          ENVIRONMENT
constrained by the company's                                              INVESTMENTS
high      capital     expenditure
                                       I. Global carbon market
requirements,         which      are
expected to amount to Indian           could grow to €5 billion           I.    Korindo looks to
rupee       (Re)     12.7    billion   in 2005                            build new paper mill in
(US$292 million) over the                                                 Indonesia
next four to five years. The           Latest reports say that the
expansion will increase its            total size of the market could     The        South        Korean
installed paper manufacturing          grow to more than €5 billion       conglomerate Korindo Group
capacity to 650,000 tons per           in 2005. This follows the price    plans to invest in a greenfield
annum (tpa), from 387,000              rise in the EU Emissions           integrated   paper    mill   in
tpa currently. The program is          Trading Scheme (ETS) and is        Kalimantan, Indonesia. The
essential to sustain its strong        about 2.5 times more than          group is mulling over building
market       position     and     to   what we have previously            a plant with a capacity of
modernize        its    production     forecasted for the market this     130,000       tonnes/yr      of
facilities.       The       capital    year.                              lightweight coated paper and
expenditure will be funded by                                             100,000       tonnes/yr      of
a mixture of debt and internal         In the first half of 2005 the      mechanical pulp.
cash      generation,     with     a   global carbon market has
targeted maximum debt-to-              seen transactions totalling an     Preliminary estimates put the
equity ratio of 0.9x. Debt to          estimated volume of 134.5          cost of the scheme at $250
EBITDA is expected to remain           million      tonnes       CO2      million. A feasibility study is
at about 3x at least in the            equivalents     (Mt)     worth     under     way,      which    is
near term.                             approximately €1.62 billion.       scheduled for completion in
                                                                          September.
Ballarpur's       liquidity    is      The EU ETS is now firmly
adequate, although this is             established as the engine of       Construction work is slated to
dependent on the smooth                the global carbon market. In       begin early next year. The
rollover of its working capital        the first six months of 2005       group is already in talks with
facilities. At March 31, 2005,         the market has seen 65.6 Mt        potential suppliers, including
the company had debt due               traded in the brokered market      Voith Paper and Metso Paper,
within a year of Re3.5 billion,        and 10.2 Mt on the different       according to a spokesman.
including Re1.9 billion of             exchanges.     Including   the     Startup is penciled in for early
working capital facilities that        bilateral market we estimate       2008. The mill's output would
we have assumed will be                that the EU ETS has totalled       be sold on the export market.
successfully rolled over. The          more than 90 Mt. This              Korindo has 100,000 ha of
balance       of     the    debt       corresponds to an estimated        forestland    in   Kalimantan,
amounting to about Re1.6               financial volume of €1.37          which would supply raw
billion is sufficiently covered        billion, or about 84% of the       materials for the pulp plant.
by      its  cash     and   cash       total market this year. Based
equivalent of Re1.4 billion and        on current forward prices we       II. Yash of India hits
unused credit facilities of            forecast the financial size of     further   delay  with
Re2.6 billion, including Re0.9         trades this year to be €4.5
                                                                          expansion scheme
billion of funded lines.               billion.
                                                                          Yash Papers has encountered
"The stable outlook reflects           The project investment side of
                                                                          another delay with the Rupee
Ballarpur's ability to maintain        the carbon market, the Clean
                                                                          850 million ($19 million)
its leading market position,           Development        Mechanism
                                                                          expansion of its Faizabad mill
improving operations, and              (CDM)         and        Joint
                                                                          in the northern Indian state of
competitive    cost    position,       Implementation (JI), has not
                                                                          Uttar Pradesh.
which could mitigate potential         seen expected growth. Total
margin      pressures      from        volumes transacted in these
                                                                          The Indian firm had some
increasing competition and             segments are estimated to
                                                                          difficulties with the financing


                                                      2
for the project, but has now      made yet, but negotiations         The delivery will include a
issued   16.8    million new      with the Madhya Pradesh and        paper making line equipped
shares. The move has raised       Andhra Pradesh governments         with    a    machine    control
Rupee 235.2 million, which        are in an advanced stage.          system supplied by Metso
will be used to help fund the                                        Automation.       The    paper
scheme.                           The principal requirement is       machine        delivery     will
                                  the    availability     of  vast   comprise a headbox; wire,
Work was slated to start in       forestland around the mill         press and dryer sections; size
May, after being delayed from     site. The firm requires more       press, soft calender, reel, and
March, but is now scheduled       than 1,000 ha for the mill         various auxiliary equipment.
to begin during the third         premises and nearly 75,000         In addition, the delivery also
quarter. Enmas Andritz and        ha for the plantations. Local      includes equipment for stock
Hindustan    Dorr-Oliver   are    newspapers have reported           preparation      and     paper
providing   the    equipment,     that Madhya Pradesh seems          finishing.
which includes a new 70           to be the front runner as          The line will produce uncoated
tonne/day      kraft     paper    some     ITC    officials  have    woodfree fine paper in a basis
machine, PM 3, a recovery         already visited the state's        weight range of 50 to 120
boiler and a 6 MW power           Mandla district twice and have     g/m2. The machine will have
plant.                            shown interest in the Maneri       a production speed of 1600
                                  area. The local dailies further    m/min and a trim width at
The scheme also includes a        said     that       the    state   reel of 8.6 m.
130 tonne/day bagasse and         government has offered ITC a
straw   pulp    unit,   a   40    choice of 12 sites suitable for    V.India's Shree Bhawani
tonne/day recovered paper         the project.                       looks to boost output
pulping system and a 70
tonne/day bleach plant. The       Once the site is selected, ITC     Shree Bhawani Paper Mills
project will be carried out in    intends     to    launch     a     plans to splash out Rupee 690
four stages and is slated for     cooperative    program    with     million   ($16     million)  to
completion    by    the   first   local farmers to secure raw        expand its plant in Uttar
quarter of 2007.                  materials for the mill. ITC        Pradesh, India. The firm said
                                  already supplies high-yield        it is looking to increase its
The Faizabad plant currently      saplings to farmers of more        capacity      from       21,000
has a 2.5 MW power plant and      than 29,000 ha of plantations      tonnes/yr       to       44,000
two    machines,     the    20    for its other mills in the         tonnes/yr, but did not provide
tonne/day PM 1 and the 30         country.                           further details on how it
tonne/day PM 2. The units                                            intends to achieve this.
produce    unbleached    kraft    The scheme is expected to be
paper from agricultural waste.    finalized  in  October    and      However, the company did
                                  construction work is expected      disclose that it will install a
III. ITC moves forward            to begin a month after. The        chemical recovery unit and a
with    greenfield mill           three-year project will be         power plant. The firm intends
project in India                  financed from cash flow.           to increase its share capital to
                                                                     raise up to Rupee 250 million
The project blueprint for ITC's   IV. Metso to supply fine           to help fund the project.
Rupee 25 billion (US$575          paper line to Indonesia
million) greenfield pulp and                                         Local media have reported
paper mill in India has been      Metso Paper will supply a          that Shree Bhawani plans to
completed and the Indian firm     large production line for fine     install a new printing/writing
is now busy scouting for the      paper in Kerinci, Sumatra in       paper     machine    and    an
facility's    location.     The   Indonesia.           Engineering   integrated pulp plant. The
200,000 tonne/yr greenfield       Resources, Ltd., ordered the       company currently produces
plant will produce elemental      line, and it will be operated by   both printing/writing and kraft
chlorine-free          bleached   an associate company of April      papers at the Uttar Pradesh
eucalyptus pulp and coated        Group. The annual capacity of      mill.
printing/writing paper.           the production line is 415,000
                                  tons, and the start-up is          VI. Century of India
Jaakko Poyry finished the         scheduled for the second half      opts for new machine
feasibility study in June and     of 2006. The customer has
ITC is now in talks with          requested that the value of        Century Pulp & Paper has
officials from four different     the order is not disclosed. The    revealed more details about a
states for the mill site:         order was booked for the           project to expand its mill in
Madhya      Pradesh,   Andhra     second quarter of 2005.            India's Uttaranchal state. A
Pradesh, Maharashtra and                                             company           spokesman
Gujarat. No decision has been                                        confirmed that the board has


                                                 3
decided to invest in a new         the   development     of    the     One in four U.S. households
printing/writing          paper    market and have now decided         uses an independent septic
machine for the facility, rather   to add further capacity in two      waste system, according to
than a revamp of an existing       countries:      India      and      EPA published data. Without
PM, as previously announced.       Vietnam," states CEO Heikki         special periodic maintenance,
The 211 tonne/day unit will        Takanen from Huhtamaki.             these systems may be subject
be installed at a new plant                                            to clogging that can result in
adjacent to the Lalkua mill in     In India, Huhtamaki already         expensive service and repairs.
Nainital district, which is        has four facilities with 1,300      Potlatch's Consumer Products
located in the south foothills     people     producing     mainly     Development Group designed
of the Himalaya, at the            flexible packaging for food         SepticSure        to      help
Nepalese border. The Voith         and non-food sectors. The           homeowners maintain clear
Paper machine, which was           building of the new facility will   flowing lines from the home
ordered in May, will have a        start in the last quarter of        to the septic tank. SepticSure
width of 6 m and be able to        2005       and      commercial      offers septic and RV/Marine
produce 90,000 tonnes/yr at        production is planned to            users both rapid dissolvability
a speed of 833 m/min. Raw          commence in mid 2006. The           and two-ply thickness and
materials will include mainly      facility will supply premium        softness.
bagasse, but also some wood        flexible     packaging       and
pulp. The Rupee 3.85 billion       labeling systems to major           While several national brands
($89 million) project is slated    customers in North India.           claim their products are septic
for completion in the first                                            safe, tests indicate those
quarter of 2007.                   Huhtamaki        opened     its     products      dissolve   much
                                   Vietnamese facility last year.      slower than SepticSure and
Century will also splash out       It supplies flexible packaging      may require more than one
an estimated Rupee 200             for food and non-food sectors.      flush to clear the bowl.
million on a new 15 MW             It is situated close to Ho Chi
turbine and a multi-fuel           Minh City and employs over          II. Saudi Paper to boost
boiler. The boiler is likely to    160 people.                         tissue output
be commissioned in the first
quarter of 2006, while the         "We are on track with our           Saudi Paper Manufacturing
turbine has a January 2007         original plan for Vietnam           has revealed further details
startup date. The firm is          which included a staged             about a new tissue machine
currently installing two new       ramp-up      of     production      the firm plans to install at its
digesters to process wood          capacity.       Sales        are    Dammam plant in Saudi
chips into pulp. These will        progressing     according     to    Arabia.
serve as an alternative in case    schedule    and    include      a
of a shortage of bagasse. This     mixture     of    local     and     The 5.5 m wide crescent
investment is set to cost          multinational customers. The        former unit will have a
Rupee 170 million.                 new     production    line     is   capacity of 50,000 tonnes/yr.
                                   expected to be in commercial        The company hopes to choose
VII.   Huhtamaki plans             production within the second        the        supplier     shortly.
new flexible packaging             quarter of 2006", says Tony         Installation is scheduled to
plant in India                     Combe, executive VP, Asia-          begin in September 2006,
                                   Oceania-Africa             from     with startup slated to follow in
Huhtamaki has announced the        Huhtamaki.                          the first quarter of 2007.
expansion       of     flexibles
packaging capacity in Asia.        TISSUE                              Some of the PM's output will
Huhtamaki will build a new                                             be converted into products
production facility in North                                           such as facial tissue, toilet
                                   I.  Potlatch    launches
India    and   add    a     new                                        tissue and kitchen towels,
                                   new bathroom tissue for             while the rest will be sold on
production line to the recently
opened plant in Vietnam. The
                                   septic and RV/Marine                the market. Saudi Paper
combined value of these            sanitation systems                  Manufacturing aims to sell the
investments     is   Euro    20                                        goods in all regions.
million.                           Potlatch         Corporation's
                                   Consumer Products Division          The Dammam mill currently
"We     want   to    optimize      announces the launch of             houses three twin-wire tissue
Huhtamaki's   manufacturing        SepticSure™ bathroom tissue,        machines:      the    16,000
structure and actively seek        a unique product to help            tonne/yr PM 1, the 24,000
growth in emerging markets.        tissue users in homes with          tonne/yr PM 2 and the 30,000
Today about 15% of our net         septic waste systems as well        tonne/yr PM 3.
sales comes from emerging          as users of RV and Marine
markets. We carefully monitor      sanitation systems.


                                                  4
III. Colombia's Familia             technology      to     improve      misinformation to prey on
Sancela gears up for                productivity   and    minimize      emotion. And they are smart
tissue PM launch                    environmental impact. We're         enough to try to hit us where
                                    getting more fiber per acre         it   hurts    by     targeting
Familia Sancela has built a         than ever and this allows           customers.
new tissue paper mill and           society the choice to conserve
converting plant in Cajica,         more land.                          Industry                experts
some 20 km from the center                                              conservatively estimate that
of Bogota, in Colombia.             While we're committed to            such market campaigns could
                                    sound science and results-          cost our industry billions of
The facility will house a           based       application        of   dollars per year. Consider the
36,000      tonne/yr    machine     productivity technology, we         Rainforest Action Network's
supplied by Voith Paper,            also      understand          the   (RAN's)    campaign     against
which is scheduled to start up      importance         of      forest   Weyerhaeuser. They started
in September. The project           resources other than trees. In      this campaign in 2003 and
cost is set to total $60 million.   this area, we acknowledge           have gradually intensified it.
The PM's output will be             that regulatory requirements        They surveyed retail stores in
converted on site into a range      and environmental pressure          Seattle to see who sells our
of products, from napkins to        have    been     catalysts    for   products and demanded that
toilet tissue.                      progress. Our environmental         a grocery chain that is a
                                    research     staff    comprises     major         customer       of
Familia Sancela's chairman,         aquatic      biologists      who    Weyerhaeuser       bags    stop
John Gomez Restrepo, told           increase our understanding of       purchasing them. When this
Paperloop that the investment       fish and forest interaction,        customer       refused,    RAN
would enable the firm to meet       geologists who help design          planned an "International Day
demand in western Colombia          harvest units and roads to          of Action" and called for
and to make inroads into the        minimize slides and erosion,        protests at its stores.
eastern Venezuelan market.          hydrologists        who       are
                                    concerned with water quality        Our response has been to
The      company        already     and quantity from our lands,        meet face-to-face with their
produces 75,000 tonnes/yr of        and scientists who specialize       representatives to try to
tissue at its mill in Medellin,     in wildlife and biodiversity,       understand their issues and to
Colombia, and some 29,000           helping us protect areas of         help them better understand
tonnes/yr of tissue at its          special value in the forest.        our practices. Even though we
Lasso    plant   in   Ecuador.                                          have clearly communicated
Familia Sancela is 50/50            In      spite      of     these     our position, their position has
owned       by       Colombia's     accomplishments, the forest         not softened. We are already
Productos      Familia      and     products      industry,     and     doing many of the things that
Sweden's SCA.                       science-based     forestry,   is    RAN wants and there is
                                    under assault. The reality of       virtually no gap between our
                                    what we do to effectively           practices    and     those     of
                                    utilize   and    sustain    the     organizations that RAN has
REPORT -       Environment          resource is not the perception      publicly praised. We support
                                    of the average citizen. We          SFI, which is governed by an
Sustainable   industrial            need to better convey to the        independent       board      and
forestry:   Perceptions             public what we've achieved in       employs third-party audits of
and reality                         forest management.                  certified   lands.    Yet     we
                                                                        continue to be challenged, in
By Richard Hanson, COO              Customers: The ultimate             spite of the facts, presumably
Weyerhaeuser, Inc.                  target                              because of our size and
                                    Some environmental groups           leadership position on forestry
We must shape the future of         use distortions and half-truths     issues.
sustainable industrial forestry     to demonize forestry and
and, more broadly, the role of      manufacturing        practices.     No     more     "brown"      vs.
forest     management        in     These groups do not appear          "green"
meeting society's needs. In         to care about the value and         If   environmental      activists
presentations and on the            advantages      our   products      succeed      in   setting    the
ground, we've demonstrated          bring society, the advances         agenda, they will minimize
that Weyerhaeuser forestry is       we have made in forest              the respect we have earned
science based. We have been         management, or about the            and threaten the industry's
committed     to   sustainable      science that indicates that we      viability. This will hasten off-
forest management for a long        can balance economic and            shore forest development and
time, and our able foresters        other        forest      values     lost opportunity in North
continue     to     implement       sustainably. Rather, they use       America.


                                                   5
What will we do? Of course,         writing     paper       grades.
we will go forward. We will         However, in 2004, there was
continue to listen, learn, and      a change in the tide: China's
continually improve. We are         total printing and writing
doing our best to provide the       paper net imports climbed to
facts to our customers and          about 600,000 tonnes, almost
the public, but we cannot do        a 60% gain over their levels
it alone. It is necessary for all   in 2003. This change was
of us to speak out.                 brought on by a lull in           Chinese                 coated
                                    Chinese capacity expansion,       woodcontaining net trade also
For    example,    we    must       as      producers      reduced    is   undergoing     a  modest
support foresters to become         investment in 2001-2003 in        change. Chinese exports thus
articulate advocates, or we're      response    to    the    excess   far this year have picked up
going to lose the debate.           capacity that had built up in     somewhat, averaging about
Some forestry programs have         the late 1990s and 2000. With     4,000 tonnes per month in
reacted to environmental and        solid demand growth and a         January-May 2005 versus an
funding      pressures      by      tightening market balance in      average     of   about   2,000
minimizing     emphasis     on      2004, China's imports rose        tonnes per month in the latter
"forestry"    and     focusing      and its exports leveled off.      half    of     2004.   Chinese
primarily on environmental                                            Customs data show that these
management. We must to get          In 2005, the tides once again     coated          woodcontaining
away from the brown versus          have started to shift (see        exports are destined primarily
green attitudes. There is           Figure).    Chinese     coated    to three markets: Japan,
nothing inherently wrong with       woodfree net imports have         South Korea, and Hong Kong.
intensive forestry for fiber        dropped off sharply over the      [Note     that   the   Chinese
production. Indeed, it is           beginning of 2005: we show        Customs data matches the
compatible with conservation.       China as a modest net             Japanese Customs data fairly
                                    exporter of 10,000 tonnes of      well, but show different levels
We all need to do public            coated woodfree paper in          and trends than indicated in
outreach and education and          January-May 2005 compared         the South Korean Customs
talk about our expanded             with 210,000 tonnes of net        data.] In addition, Chinese
capabilities in balancing fiber     imports in the same period of     imports         of      coated
production        and      good     2004. This shift resulted from    woodcontaining     paper    are
stewardship. Doing so will          both higher exports and lower     estimated to have fallen
help the industry have a            imports. In year-over-year        about 35% in January-May
significant influence on social     comparisons based on five         2005 compared with their
attitudes     and     regulatory    months data, Chinese coated       levels a year ago.
policies.                           woodfree      exports     have
                                    jumped 156% and imports           On the uncoated woodfree
It is in all of our interests to    have fallen 32%. Most of the      side, China shows a drop in
allocate more time to public        increase in exports has been      its net imports of uncoated
outreach to ensure that our         to Hong Kong and Japan, but       woodfree paper relative to a
schools       have       healthy    Chinese producers are also        year ago: they totaled just
enrollments       of      future    starting to penetrate other       50,000 tonnes in January-May
foresters and scientists and        Asian    markets    as    well,   2005 versus almost 100,000
that our industry remains           including India, Singapore,       tonnes for the same period in
viable and valued for its           and Indonesia. Shipments to       2004. Imports are running at
contribution to the quality of      North America are also up         similar levels as last year, but
life.                               sharply (88%) and Chinese         exports have climbed thus far
                                    exports are making minor          this year, mostly to other
REPORT                              inroads into the Middle East      countries within the Asian
                                    and Western Europe as well.       region.
                                    As for the reduction in
The changing tides in               imports, many suppliers are       The shift in printing and
China's   printing  and             seeing their shipments into       writing paper trade in 2005
writing paper trade                 China slide, with producers       probably is not a surprise to
                                    from other Asian countries        many, given that capacity
Since mid-1999, the general         including    South      Korea,    expansion is picking up again
tendency in the Chinese             Indonesia, and Japan seeing       in China. However, the timing
printing and writing paper          sizable   declines.    Western    of the shift is a little earlier
trade has been toward lower         European and North American       than    might    have     been
net imports, with periods           shipments also are down.          anticipated given that the two
when China has been a net                                             expansions talked about most
exporter of some printing and                                         (UPM's new 450,000-tonne


                                                  6
machine      and    APP's   new     Customs data show exports of        2,200 employees in 17 plants
700,000-tonne machine) only         printed materials grew 25% in       (seven in Canada and 10 in
started up in May. However,         2004, but growth has slowed         the US) and 13 distribution
there are a number of factors       to just 6% in the first five        centers (all Canada).
that might explain the timing       months of 2005. Another final       TWM: Cascades Inc., has
of the shift. First, capacity       factor that could be holding        been       in      the    news
growth        did     accelerate    down demand a bit            is     regarding plans to maybe
somewhat in 2004 (probably          expectations of lower prices in     sell-off     some      non-core
felt more in the second half of     the future as the new lines         assets, specifically the fine
the     year)     and   Chinese     ramp up. Where we come out          paper       business,       and
producers may have entered          on the issue is that Chinese        concentrate on tissue and
2005      with     above-normal     demand levels, at least, have       packaging. Assuming that
inventories (although they          not been as strong as               this    goes      ahead     and
had reduced prices late in          expectations, and this likely       additional funds are made
2004 to try to bring their          has yielded a bit of a glut in      available       to     Cascades
inventories back in line).          the market.                         Tissue Group to invest,
Second, based on market                                                 which       areas      of   the
reports, we suspect that            No matter what the cause of         business would you like to
printing and writing paper          the shift in trade, we believe      strengthen, and are there
demand has not been as              that what we have seen thus         any new areas you would
strong in China as producers        far this year is only the           like CTG to move into?
anticipated and inventories         beginning. We are forecasting       Blanchet:      We     want    to
may have risen in recent            that Chinese coated woodfree        continue to strengthen our
months. Woodfree prices took        net imports will continue to        position in North America, and
a sharp turn downward in            decline over the remainder of       more particularly in the US,
Hong Kong in May and June,          2005 and into 2006, leaving         and more in the finished
partly due to the startup of        China a net exporter of this        goods area. We have started
the    new      machines,    but    grade.       Total     uncoated     out by making parent rolls
sluggishness in demand was          woodfree net imports are also       and      selling     them     to
also cited as a reason for the      predicted to fall this year. The    companies, but we do want to
pricing    weakness.     Finally,   new       capacity      currently   increase our integration level
Chinese producers likely have       ramping up and additional           and we will continue to look at
been working to expand their        machines coming on-line later       the opportunities to grow that
markets and improve their           this year and early next year       [side of the business]. That's
distribution    channels,   and     will be looking for markets for     really the focus: more in the
these efforts may be starting       the rising production, and          US.
to bear fruit.                      China's     demand       is  not
                                    expected to keep up.                In terms of finished goods,
What indicators are there of                                            does that mean you want
sluggish printing and writing       CEO INTERVIEW                       to have more integrated
paper demand in China?                                                  facilities?
Chinese statistics on this topic
                                    Suzanne Blanchet, CEO,
are few. The broad economic                                             Yes, more integrated facilities
data do not provide much            Cascades Tissue Group               like the Memphis mill. We
support for this notion. First,                                         hope to make paper there
the economy, while slowing a        Suzanne     Blanchet    joined      before the end of 2004. There
bit, is still growing at a rapid    Cascades in 1979, climbing          we will use about one-third of
pace. Retail sales of consumer      the corporate ladder one step       the paper ourselves and sell
goods are up 13% for the first      at a time until in 1997 she         the other two-thirds on the
five months of 2005, similar        was made president and CEO          open market. There could be
to their rate of growth last        of Cascades Tissue Group            other areas where we could
year. Some available statistics     (CTG). Blanchet is one of only      look, but that's our expertise,
do reveal some sluggishness,        two women to head a pulp            papermaking:          Cascades
but the extent that they            and paper company in Canada         started in papermaking in
represent the trend in the          (the   other   being   P.Gael       1964 and converting in the
overall market is unclear. For      Mourant, CEO of Strathcona          90s; we are still learning, but
example, data on magazine           Paper) and one of only a few        we are growing. And we want
sales and letters handled           female     paper     company        to grow in the papermaking
through the post are down           leaders anywhere in the             as well as in the converting
6% and 13%, respectively,           world. Today, CTG is the            area.
for the year through April.         second-ranked tissue paper          In     Canada       you     are
Also, growth in the export of       manufacturer in Canada and          currently #2 in tissue and
printed materials has slowed        fourth-ranked     in     North      you have stated you want
considerably:           Chinese     America. The company has



                                                   7
to be #1. How do you              private label represents 40%       that  complements         tissue
intend to achieve this aim?       of the total tissue category.      making very well.

We're very close to Scott,        Is it necessary to approach        In      AFH,    dispenser
which is the #1: just behind.     the US market as a series          technology seems to be an
And the market is a more          of regional markets, or is it      increasingly    important
limited market. There are         possible to treat it as a          part of the package. Is
other players and if one day      single, national market?           that something CTG would
they are interested [in selling                                      also like to offer its
up] we will have talks, but it    We could have a national           customers?
is not something that we will     approach, but we prefer to
pursue: if it comes, it comes;    serve regional markets. G-P,       We're working on that right
if it doesn't come, it doesn't    K-C, P&G: these are national       now. We are investing money
come.                             players; we are more like a        in developing a unique type of
                                  regional player. We are multi-     dispenser. When you look at
Scott has two consumer            regional; we don't have the        the success of SCA or Bay
tissue brands in Canada -         full scale of the national         West    with    their  unique
one for the west of the           players, not yet. And we           dispensers, you see the value.
country (Purex) and one           prefer to walk before we start     It allows you to differentiate
for the east (Cottonelle -        to run. I think it will bring us   yourself from the converters
to   be    rebranded    as        batwings if there is an            or regional players.
Cashmere). What is CTG's          opportunity to add paper
branding     strategy   in        machines or to buy somebody        Does CTG have any plans
Canada?                           because     some     customers     to expand southwards into
                                  would like to give us more         Mexico or other parts of
We are more private label.        business because we are a          Latin America?
We do have the Cascades           good alternative [to the
brand and we would like more      national players]. It's a nice     Maybe one day. Cascades
brand recognition for that, but   problem.                           Boxboard is in Europe, and it
it takes years, it takes money,                                      could      give     us     some
the right product and the         If you had to choose               advantage, but the tissue
distribution. For sure we have    between      making     an         market in Europe, is very,
developed products when we        investment in consumer             very competitive and very
started in the tissue business    tissue or AFH, which would         fragmented. And I think it
- we have had the Cascades        you choose?                        would make more sense for
brand for seven years now.                                           CTG to have more of a
We have learned a lot - how       It would be on the retail side     presence in Latin America,
to make softer products, more     because right now when we          which     follows   more     the
absorbent products. And we        look at the market we see          American       way   of   doing
have R&D people just for the      that we could develop more in      business.      This   may     be
tissue, [so] now we have          retail. The tissue market as a     something       to   look     at,
products that could compete       whole     is    roughly      60%   particularly as the market
with the national brands. In      retail:40% AFH and we are          there is forecast to grow.
the past we were not there,       more like 50:50 right now.
but now we can compete            I would like to grow the retail    What's your view on TAD:
quality-wise with the national    side so that it is closer to 60%   Is it a technology you
brands. That's our intention:     of our business.                   would like to have within
to continue to be there; it                                          your company?
may take a while, but we          CTG bought the wipers
certainly want to increase our    business IFC Disposables           Certainly. It's a product that
share in the retail tissue        in 2000: how has that              has its place in the market,
market.                           business fared and is the          especially for the retail towel.
                                  wipers sector another area         It's   a     very    expensive
Are     your   customers          of possible expansion?             technology but it's something
pushing you to improve                                               that we have in our minds.
quality on the PL side as         It's a nice market, a nice
well?                             niche. Prior to the acquisition    Could you explain a little
                                  we didn't really know the          bit about the Memphis
The PL customer wants the         wiper   business,    but    the    expansion: what you are
same standard of quality as       people running that division,      doing there and what the
for the national brand. It is     the marketing and sales            aim of the expansion is?
not considered a lower quality    people,     the     production     You mean 'why Memphis?' -
anymore in Canada where           people,    they    have     the    because of the location. We
                                  expertise and it's something       are   in    the   Northeast,


                                                 8
Southeast, Midwest, north         Despite              short-term      Thus, the stage was set for
Midwest, West, but not the        fluctuations in demand, the          the rush of new tissue
mid-south US, which is where      U.S. tissue market yields a          machine announcements that
a lot of the growth is. It's a    relatively stable growth rate        include Cellynne (Haines City,
good mill: one 200-inch (5 m)     that    must     be    fed   by      Florida), Laurel Hill (Cordova,
paper       machine,       two    increasing domestic capacity.        North      Carolina),    Orchids
converting lines, not too         Imports will not suffice owing       (Pryor,      Oklahoma),      and
many people: And of course it     to prohibitively high shipping       Procter & Gamble (Green Bay,
is well located - another         costs (we often say that with        Wisconsin).      Analysts     are
footstep for us.                  tissue, one is "shipping air")       certain that Cascades will
                                  and            quality/branding      soon clarify and finalize its
Do you have any plans for         differences,    internationally.     expansion      plans;    Wausau
a greenfield mill?                Furthermore,     the    average      Paper is working through a
                                  machine size in tissue is just       feasibility study to add one or
Good question. I think the        40,000 tonnes per year (tpy).        two machines to yield a net
tissue market continues to        Even giant tissue machines,          gain of an estimated 70,000
show good signs of growth.        like SCA's relatively recent         tpy and both Lincoln Tissue
Many companies were afraid        addition in Alabama, barely          and Metro (of Canada) are
of 2004, including us. But the    reach 100,000 tpy -- small-          considering expansion. What
economy has got much better       scale compared to the world-         will be the impact of these
and some machines have            class market pulp mills that         new machines, and can we
been shutdown. A greenfield       may feed them.                       expect                 additional
is something we are studying:                                          announcements         of     new
we already have deinking          The lull in capital projects         initiatives?
plants, so that would be          early in the year was, no
complementary.             It's   doubt,    attributable    to     a
something we are studying         hangover from the excesses
seriously.                        of supply expansion during
                                  2003-2004.       During      that
Will production of parent         period, over 500,000 tpy of
rolls for the market be less      new capacity (8% of the
of a priority long-term?          industry total) started up
                                  despite the fact that demand
We grow in both (parent rolls     growth slid to below 1% per
and finished goods): we want      year.    Were     it   not     for
to convert more, but we also      producers' earnest efforts to        We now know that half-a-
have      the   papermaking       reconcile supply with demand         dozen or more new PMs will
expertise. We will grow in        by shutting down or idling           be starting up in the U.S.
both, but step-by-step, that      numerous       machines,      the    tissue market over the next
way you minimize the risks.       industry operating rate would        couple of years. The industry
                                  have fallen to disastrous            has accommodated such a
Predicting new machines           levels.                              glut of new capacity in the
in U.S. tissue market was                                              past. However, several high-
easy - but how to assess          In    this    environment       of   cost tissue machines have
the impact?                       somewhat tighter markets,            sometimes been forced to
                                  tissue     mills    also    enjoy    shut down or sit idle to make
Industry analysts had earlier     improved      pricing.    Several    room for the new ones.
predicted that U.S. tissue        attempts to boost tissue             Analysts’ five-year forecast
producers would soon come         prices failed during 2002-           for    U.S.    tissue   remains
forward with plans to build       2003      owing      to    falling   relatively optimistic. However,
several new paper machines.       operating rates and relatively       the health of the overall
And in the weeks that             low fiber costs. But beginning       industry in coming years still
followed that call, there are     last summer, intensifying cost       depends critically on the
five projects that are clearly    pressure       and     tightening    decisions    producers     make
moving ahead and four more        markets         forced      most     today      regarding      capital
that are in the planning          producers to abandon the             projects. A rigorous analysis
stages. In truth, it was an       widespread           use        of   of the potential impact of
easy call. First and foremost,    promotional (or discounted)          these decisions is essential.
at the time, only Unicell's       pricing schemes. Tissue prices
project at Brownstown, Ind.,      jumped markedly as a result -
had been officially announced.    - although not enough to
But there are other factors       offset cost inflation. Still,
that pointed to new tissue        consumer tissue prices stand
machines on the horizon.          nearly 9% above year ago.


                                                  9

				
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