Owning a board mill today can be a real challenge, to put it politely. Even if you've invested in it over the past decade, you've watched the prices for your finished products stagnate for years or drop, as supply outran demand by a hefty margin. Only now are containerboard prices rising (too quickly, some would argue). And if you didn't bother to upgrade your machines, you're in deep trouble now. Those machines are now no longer able to produce world-class paperboard at world-class speeds.
Since the middle of last year integrated board producers (Smurfit-Stone, Weyerhaeuser and International Paper, to name a few) have announced mill closures or are in the process of studying whether or not to close some of them.
You have to wonder why more paper companies don't just do what Longview Fibre, Longview, Wash., did last October: permanently shut two small linerboard and kraft paper machines (that had been indefinitely inactive for about four years) and take a tax write-off. Let's hope that these two machines are dismantled and sold for scrap.
Why aren't idled board machines being dismantled, never to taste OCC and DLK cuttings again? The quick answer, of course, is money. Company executives look at these operations and say to themselves, "There must be someone, somewhere, who will pay us something for this."
They are often dead wrong. It would be better to dismantle the operation and sell it for scrap. But sometimes, if they have enough patience, they might be right, especially if the prospective buyer wants to produce a different paper product at that mill.
Today board mills are shut without a new buyer. It makes more sense to take the aforementioned tax write-off and lay off the employees than to just keep producing board that you may or may not (depending on the grade) make a profit on. Besides, the industry knows that board mills aren't going for premium prices nowadays.
Smurfit-Stone Container Corp., Chicago, has been trying to sell its medium mill in Bathurst, New Brunswick, for months now.
“Smurfit-Stone needs cash to fix its corrugated box system," says Chip Dillon, paper industry analyst for Citigroup, New York City. "There is some value to these [mills]. Notice that when containerboard mills are closed, they are but a small part of a bigger system."
That's true. But it is not what the former Bathurst mill employees want to hear. The unions in Canada are pushing the local government to find a buyer. While they're much stronger than the unions in the U.S., to date they haven't made a difference in how quickly a board mill is sold.
One key reason why these mills sit on the open market for so long is the conditions that the current owners put on any sale. For example, Smurfit-Stone insists that the medium mill's assets not be sold to a direct competitor. So unless a paper company is willing to spend the money to convert that medium mill in New Brunswick to, say, bag paper, it is going to remain for sale for many more months to come.
What's the quick solution to this problem? Once a board maker decides to shut down and write off one of its mills, it needs to set an "expiration date" for its sale. One year sounds reasonable to me.
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