International Paper Closes Another Mill … Wake-Up Call for the Office and Commercial Printing Industry18 Sep, 2013
Here is a terrific excerpt from Jeff Hayes, president of InfoTrends, on a real wake up call for our industry (see full article with charts and images at: http://blog.infotrends.com/?p=12291#sthash%2EI1OBw6Xr%2Edpufor Twitter: @HayesToday and email: http://email@example.com).
According to Mr. Hayes:
International Paper announced it will permanently close its massive Courtland, Alabama mill by the end of the first quarter of 2014. This is a huge decision for IP and speaks very loudly about the long-term demand for printing and communications paper. Printer and copier manufacturers, inkjet and toner vendors, office products and supplies resellers, and print service providers need to take notice.
International Paper Courtland Alabama Mill
Source: Decatur Daily
International Paper is the second largest producer in North America of uncoated freesheet accounting for approximately 20% to 25% of industry capacity (Domtar is number 1). Closing the Courtland mill will lower the industry’s capacity by around 8% (765,000 tons), the equivalent of 153 billion sheets of 20 lb. bond paper. The mill also has capacity for 135,000 tons of coated paper which will be eliminated.
This closure is the second, and largest, reduction in uncoated freesheet production that IP has made over the last three years. IP closed its Franklin, Virginia mill in 2010 (600,000 tons uncoated capacity), only to re-open it last year to produce fluff pulp for diapers as I described in my blog last year. (According to IP, there are no plans to re-purpose the Courtland mill.) Between these two closures, International Paper will have reduced its North American uncoated freesheet capacity by over 45%.
Paper companies do not casually make decisions to permanently close mills. There are significant financial implications along with incredible disruption to the employees and surrounding businesses affected by the decision. The Courtland closure will result in 1,100 people losing their job in a rural section of Alabama. IP plans to record pre-tax noncash asset write-off and accelerated depreciation charges of approximately $550 million and pre-tax cash severance and other shutdown charges of approximately $125 million.
Fundamental Market Shifts
International Paper sees a fundamental shift in the demand for uncoated paper in North America. The company stated as part of the Courtland announcement that “the demand for uncoated freesheet in North America has been in decline since 1999 and has recently accelerated as consumers continue to switch to electronic alternatives such as online publications and electronic billing and filing.”
This comment is very similar to the answer Staples management gave a few weeks ago when explaining disappointing 2Q 2013 earnings. “A change in technology is impacting in our core supplies business. Ink, toner, and paper are all slightly negative.” (See Staples Earnings Don’t Bode Well for Office Equipment & Supplies Industry)
We agree. In fact we note that mobile devices, business process automation, and managed print services have accelerated this shift. The following chart from IP shows how dramatic the drop has been in per capita uncoated freesheet paper consumption in North America. It also suggests that growth in per capita paper consumption in emerging countries will be insufficient to fully replace the declines in the developed markets.
See FULL article at: http://blog.infotrends.com/?p=12291#sthash%2EI1OBw6Xr%2Edpuf