Maine Mills Look for Niche in Specialty Papers
Print this Article | Send to Colleague
According to a report on Monday (July 4) by the Portland Press Herald (Portland, Me., USA), a global decline in demand for the kind of paper that has been the mainstay of the industry in Maine has prompted several mills to re-position themselves for new product lines – and, hopefully, a brighter future.
Three Maine mills have recently announced that they are converting machinery that once produced reams of glossy, coated paper used primarily in magazines and catalogs, to start making specialty papers, such as labels, filters, and packaging. The shift is part of a scramble to diversify product lines – publishing papers represent 65% of the output of Maine mills – and to capture a greater share of new markets. At stake are 3,300 jobs in the state’s remaining six mills, survivors in a contracting industry that has shed 2,300 jobs in the past five years as five mills closed.
Twin Rivers Paper (Madawaska, Me.) said last month that it will reconfigure one of its paper machines at the company’s Madawaska mill to produce specialty paper that’s used primarily for packaging and labels, a spokesman said. At the same time, the company will shut down an older machine that produces coated and uncoated paper that’s often used in publishing, said Dave Deger, a spokesman for Twin Rivers, which also has a pulp mill and a lumber mill, both in Canada.
The company will lay off 49 workers as a result of shutting down the older machine, Deger said, but the timing of the layoffs is uncertain. The Madawaska mill has about 500 employees, he said.
Deger said the older machine was less productive than other machines at the mill and the company will invest $12 million into another one of its machines to expand the types of paper it can produce.
"We’ve only been a niche player in publishing" paper, Deger said, and the company is in the midst of a three-year plan to focus more on specialty papers, he said.
That’s a strategy that other paper companies are following.
Verso (Memphis, Tenn.) said in early June that part of its strategy for emerging from bankruptcy protection includes changing the mix of paper it produces. Verso, which operates a mill in Jay, Me., didn’t specify which mills it plans to reconfigure to follow that strategy. However, in Jay, nearly half of the production currently is coated paper, which is glossy paper used primarily in catalogs and magazines, so it seems a logical place to try to diversify production.
Sales of U.S.-produced coated paper are down because of a decline in demand from the publishing industry and also because of pressure from imports, which are often priced lower than paper made in the U.S.
U.S. manufacturers have charged that other countries, like Canada, are unfairly subsidizing paper production to capture business in the U.S., but penalties that are being imposed likely won’t have an immediate effect.
A shift toward specialty paper may offer a way out.
Catalyst Paper Co. in April restarted a paper machine at its mill in Rumford to produce specialty paper. The move allowed the company to recall 51 workers who had been laid off when the paper machine was shut down last fall.
"The typically produced grades in the state – printing and writing grades – those markets are in decline," said Clay Enos, an analyst who works with Fisher International, a consulting and information services firm that focuses on the pulp and paper industry.
"There’s really no conventional wisdom that suggests that decline will slow substantially in the near future," Enos said, so paper companies have to change their focus if they’re going to survive.
"I’m encouraged that people are trying to find alternatives," he said. "There are some opportunities for folks to make some investments and get into grades and products that have some promise."
The change will force companies to be nimble and put together more small contracts rather than relying on big orders that occupy hundreds of workers for months at a time, Enos said.
The push to develop new markets and broaden product offerings is an approach born of need, agreed Lloyd Irland, the president of The Irland Group, a Maine consulting firm that focuses on the paper industry.
For many papermaking companies, "it’s the only strategy" that offers a hope of survival, Irland said.
Irland said the strategy carries risks, but the companies have seen how relying on customers for coated paper has left the business open to downturns in publishing as magazine and newspaper circulations fall and pages devoted to advertising shrink. Mills around the state have laid off workers or closed because of the publishing industry’s struggles in an era where the internet has replaced the printed-on-paper word.
The new approach, Irland said, actually hearkens back to earlier times in the paper industry, when mills such as S.D. Warren in Westbrook had bustling research departments, where scientists developed specialty papers for specific businesses. In Westbrook, he said, S.D. Warren operated a small inn where visiting executives could stay to help with the research on paper products for their companies.
These days, Irland said, the market for paper has contracted so much that even paper produced at productive, modern mills struggles to find a market.
"It’s not a question of being competitive," he said. "People just aren’t buying it anymore."
Instead of relying on big customers buying large amounts of what a mill produces, Irland said, many mills may have to cobble together smaller contracts for specialty runs of paper.
Those lines of paper, which include packaging papers, label papers, and security papers, are a growing segment of the market. They are generally highly customized and designed for specific applications, rather than broader, mass-market products such as glossy magazine paper or newsprint. But that specific design and application is what makes those papers more profitable and more desirable for manufacturers.
In a report for investors on its plans to emerge from bankruptcy court, Verso said the market for specialty papers was 26.9 million tons in 2015 and is expected to grow to 29.3 million tons by 2020. While that’s a relatively modest rate of growth, it runs counter to the downward trend for the industry as a whole. Verso said the U.S. paper industry is expected to continue to contract, with domestic demand declining about 10% by 2020.
Verso said the market for specialty papers is highly fragmented, but the higher potential for profits offsets that drawback. The company said its post-bankruptcy strategy includes the possibility of converting paper machines to products that offer greater growth and better profit margins.
Although it didn’t say which mills might be converted to produce more specialty paper, there is room for growth in Jay, where only 12% of the production currently is specialty papers.
Of Verso’s five mills, only Stevens Point, Wis., is entirely devoted to producing specialty papers and its capacity of 190,000 tons is by far the smallest of the company’s mills. The Jay mill, by contrast, has a capacity of 490,000 tons.
But it takes time and money to convert paper machines to specialty paper production.
Twin Rivers said its conversion of the machine in Madawaska is not expected to be complete until sometime next year. The engineering and planning for the conversion is currently underway, Deger said.
