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U.S. Capacity Holding Steady After Three Years of Decline After three consecutive years of contraction, U.S. paper and paperboard capacity held stable in 2004 at about 100 million tons, according to the American Forest & Paper Association.
"Firming demand for paper and paperboard products and the industry’s improved financial performance may have played a role in stabilizing capacity," AF&PA said today in releasing its 45th Annual Survey of Paper, Paperboard, and Pulp Capacity.
The survey suggests that industry capacity will expand slightly over the next three years through 2007. The very subdued growth rates average just 0.3% a year compared to an average 2.2% a year during the 1990s.
Paper and paperboard capacity previously contracted 1.9% in 2001, 1.3% in 2002, and 0.4% in 2003. During that time, the industry shut down 100 paper machines and permanently closed 32 mills. In 2004, the number of permanent mill shuts was seven and paper and board shuts totaled 21.
The survey, which is available from AF&PA for $645, shows that total capacity of 100.038 million tons in 2004 will reach 100.454 million tons this year. After that 0.4% rise, projected gains are by 0.3% in 2006 and 0.2% in 2007. Those rates translate to a compound average annual rate of 0.3%. Last year’s survey had projected that paper and paperboard capacity would decline by 0.6% in 2004.
Rather startling is AF&PA's report that only one new machine is due to start up in the next three years-- a tissue machine by Unicell in Brownstown, Ind., slated to come on line during the fourth quarter of this year. A greenfield newsprint machine planned by Besicorp for mid-2007 in Rensselaer, N.Y., is not far enough along in financing to be included in the survey, AF&PA said.
Newsprint capacity fell roughly 300,000 tons in 2004 for two main reasons: First, a large paper machine was permanently shut down at the end of 2003, accounting for about half of the decline.
Second, capacity continued to shift from newsprint to uncoated mechanical. In 2005 the remaining capacity for Abitibi-Consolidated's Sheldon, Texas, mill with the 2003 machine closure was removed from the survey, accounting for 70% of the 500,000 tons decline in capacity. The mill had been idle for the previous two years.
PRINTING & WRITING
U.S. printing & writing paper capacity (net of cotton fiber papers and bleached bristols) peaked in 2000 at 27.6 million tons. By 2003, it had fallen to 25.5 million tons, a decline of nearly 8% within a three-year period. Capacity did resume growing in 2004, but by less than 1%. It is scheduled to rise by about 2% in 2005 and then increase fractionally during 2006-07. By 2007, capacity will still be below the level it was a decade earlier.
In recent years, it has been the freesheet grades that have undergone the largest cutbacks in capacity, AF&PA notes, dropping by more than 10% between 2000 and 2004. By comparison, during the four-year period ending in 1994, coated freesheet capacity soared by 25%, while uncoated freesheet increased by more than 10%. Freesheet paper capacity is expected to grow again over the 2005-2007 forecast period, but much more slowly -– under 2.5% for coated freesheet and under 0.5% for uncoated.
From its high of 5.6 million tons in 2000, coated free sheet capacity had fallen to 4.8 million tons by 2003, a drop of 800,000 tons and a 14% reduction, AF&PA said. In 2004, however, capacity rebounded by some 200,000 tons. Moreover, it is projected to increase another 315,000 tons to more than 5.3 million tons by 2006. At that point, capacity will have risen in excess of 10% over its recent 2003 low. In 2007, the final year of the survey, capacity is expected to grow by about 1%.
The capacity growth is due to shifts from other printing & writing grades, primarily uncoated freesheet and coated mechanical, and rebuilds of paper machines at some mills. Partially offsetting these capacity gains is the switching of some capacity from coated freesheet to uncoated freesheet.
Coated mechanical capacity is projected to remain basically unchanged, while uncoated mechanical is expected to grow by nearly 6% this year, and then grow fractionally in 2006-2007. At almost 5.0 million tons, coated mechanical (LWC) capacity in 2004 showed little change from the year before and was down about 1% from its 2002 peak level. It is scheduled to remain essentially unchanged at about 5.0 million tons through 2007 – despite more than a 15% jump in U.S. demand over the last two years and high mill operating rates in 2004.
Large uncoated mechanical capacity gains in both 2004 and 2005 are primarily due to capacity swings from other grades, mostly from newsprint. Retained in the survey total are two paper machines that were idle during nearly all of 2004, and which currently account for more than 15% of reported uncoated mechanical paper capacity.
TISSUE
The tissue paper sector has seen a lot of activity with respect to new machines and shutdowns. Five new machines came on line during 2004. However, several machines were closed in 2003 -- with the full-year effect on capacity taking place the subsequent year -- and nine machines were removed from the survey base in 2004. Reflecting these developments as well as basis weight changes and efficiency improvements, tissue paper capacity increased 0.9% in 2004.
With new or restarted machines, tissue capacity is expected to increase 3.3% in 2005. With no new machines on the horizon after 2005, annual growth rates for tissue paper capacity are projected to slow to 0.5% in 2006 and 0.1% in 2007. For the three year projection period (2005-07), tissue paper capacity growth is expected to average 1.3%.
PAPERBOARD GRADES
Linerboard capacity declined 0.2% in 2004 to 25.5 million tons, the AF&PA survey shows, because of several developments. A machine shifted from recycled linerboard to recycled medium production in late 2003, and another machine shifted from linerboard to kraft paper production in 2004. Finally, a linerboard machine that had been permanently shut in 2001 was restarted in 2004.
In the projection period (2005-2007), there are no new machines on the horizon nor have any shutdowns been announced. Linerboard capacity is slated to edge up an average annual rate of 0.3%. This compares to average annual growth of 2.7% a year during the 1990s.
Corrugating medium capacity increased 1.5% in 2004 to 11.1 million tons. This increase reflects the shifting of a machine from the production of recycled linerboard to recycled medium during late 2003. At the same time, a smaller recycled containerboard machine was removed from the Survey base effective April 2004. With no new machines or shutdowns on the horizon, corrugating medium capacity is slated to increase 0.6% in 2005 and then hold essentially stable after that.
Recycled paperboard capacity (excluding containerboard and gypsum wallboard facings) declined 2.5% in 2004 to 5.9 million tons. The reduction reflects the closing of several machines in 2003 and the shutdown of two machines in 2004. Another two PMs have been shut down so far this year and capacity is slated to decline an additional 2.3% in 2005. Recycled paperboard capacity is projected to level off in 2006 and 2007.
Unbleached kraft folding boxboard capacity contracted 1.6% in 2004, to a level of 2.4 million tons. However, plans reported to this Survey indicate that last year’s contraction will be more than offset by subsequent growth. In particular, unbleached kraft folding boxboard capacity is slated to rise 0.5% in 2005, 1.3% in 2006, and 0.5% in 2007. If these plans come to fruition, capacity to produce this grade will be up 0.7% in 2007 relative to 2003.
MARKET PULP
Total market pulp capacity is expected to grow by 86,000 short tons through 2007 to reach 9.7 million tons. Bleached softwood kraft capacity expected to approach 6.4 million tons by the year 2007. Bleached hardwood kraft pulp is expected to decline by 17,000 tons by 2007 to reach 2.8 million tons.
Market wood pulp capacity totaled about 10.5 million short tons in 2004, about 169,000 tons less than the 2003 level, reflecting strong on-site pulp usage, leaving less pulp available for open market sales. Dissolving pulp capacity of 875,000 tons in 2004 was about 123,000 tons.
Bleached softwood kraft pulp capacity totaled 6.3 million tons in 2004, about 439,000 tons higher than 2003, reflecting the conversion of some facilities in the southern U.S. from bleached hardwood sulfate. Bleached hardwood of 2.8 million tons in 2004 was about 491,000 tons lower.
-- Gregg Fales, 3G Publishing
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