Participating as industry experts in pulp and paper financing and M & A deals around the world  for over two decades, we continue to see the same mistakes made over and over.  This newsletter is designed to help you avoid costly mistakes we have seen others make.  We will be giving you one or two points each month to help improve your performance.

 

I think in the medium to long term, the old virgin mills are in trouble.

Here's why--

They were built to make 42# liner according to old Rule 41 standards.  That is not the market today.  Today, we use strength standards and the trend is rapidly moving to 26#.

Those old 42# machines can't make the same tonnage at 26#.  Their fourdriniers are not long enough (a major building change) and their dryers cannot handle the sheet flutter of higher speeds and more aerodynamic instability. Additionally, their overall speed balance is too low--you have to change everything mechanical about them to run the speeds you would need to run to make the same tonnage.

So, they say they don't want to run fast, they will survive.  Not true.  Cut the tonnage in half and all of a sudden the pulp mill is out of balance (makes too much pulp) and so is the recovery boiler and the rest of the steam system.

Do you want to spend the money (~$200 million +) to put a lightweight modern machine at one of these sites where all the other infrastructure is 50 to 60 years old?  I don't think so.

Then you think a bit and say, we'll put in more recycling at these sites.  Operate it independently from everything else on this site.  Recycled paper (OCC) costs are mostly transportation.  So you are telling me you will haul even more recycled to Counce or Cedar Springs (they already use quite a bit as a supplement) and then haul the linerboard back to the cities where it is used?  This can't compete with the urban or near-urban recycled mills (the five in New York State, Conyers, Shreveport, Forney, Valparaiso) due to transportation.

After that thought experiment you decide, the heck with it, I will move to the city and build recycled mills.  That will shed all the union and other cultural and environmental  problems I have built up at the Counces of the world over the last 50 to 60 years.  This is what they will decide to do sooner or later.

That is the box, no pun intended, that I see coming for the old remote virgin mills.  And this will have an effect on margin, which I will leave to your prognostication--it is outside my pay grade.